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Multilateral Economic Coordination and Surveillance

Article 121 of the Treaty on the Functioning of the European Union (TFEU) establishes a procedure for multilateral surveillance of each Member State's fiscal policies and provides the basis of the preventive arm of the Stability and Growth Pact (SGP).  Multilateral fiscal surveillance is conducted as part of the European Semester for economic governance.  The European Semester, introduced in 2010 and contained in the 2011 Six Pack reforms, is a framework structured during the first six months of each calendar year, which aims to ensure that the surveillance of budgetary and other economic policies takes place in parallel so as to allow for consistent policy guidance and according to a timeframe that allows guidance issued at the European level to inform the national setting of policy in opportune time.  In the area of fiscal policy surveillance, compliance with the preventive arm is assessed during the European Semester. 

Stability and Convergence Programmes

The preventive arm of the Stability and Growth Pact requires Member States to submit stability or convergence programmes (SCPs) to the European Commission every spring.  Stability programmes are submitted by euro area Member States, while convergence programmes, which also contain monetary strategies, are submitted by non-euro area Member States. The main function of the SCPs is to allow the Commission and the Council to assess whether Member States' have reached their medium-term budgetary objectives (MTOs) or are on an appropriate adjustment path towards them, including an assessment of compliance with the expenditure benchmark. Consistency in Member States' plans with the policy guidelines adopted at the European level is also examined. The programmes are submitted annually in April and assessed as part of the European Semester, so that policy advice on fiscal policy planning is provided before key decisions are taken on national budgets for the following years.  Guidelines on the content and format of the stability and convergence programmes are covered by a code of conduct.  SCPs contain:

  • A medium-term objective (MTO) representing a budgetary position that safeguards against the risk of breaching the 3% of GDP threshold of the Treaty and ensures the long-term sustainability of public finances; the adjustment path towards the MTO (the year-by-year target effort until it is achieved) and the expected path of the debt ratio;
  • The underlying economic assumptions (growth, employment, inflation and other important economic variables);
  • A description and assessment of policy measures to achieve the programme objectives;
  • An analysis of how changes in the main economic assumptions would affect the budgetary and debt position;
  • If applicable, the reasons for a deviation from the required adjustment path towards the medium term budgetary objective;
  • Information covering a multi-annual timeframe including: one year of budgetary execution, the current budgetary year, and plans for the three following years.

Member States' convergence programmes should be based on the most likely macrofiscal scenario or on a more prudent scenario. With the entry into force of the Two Pack, stability programmes submitted by euro area Member States should be based on independent macro-economic forecasts, i.e., forecasts produced or endorsed by an independent body. The macroeconomic and budgetary forecasts are compared with the most recently updated Commission forecasts and, if appropriate, those of other independent bodies. Significant differences between the chosen macrofiscal scenario and the Commission's forecast should be described with reasoning, in particular if the level or growth of external assumptions departs significantly from the values retained in the Commission's forecasts.

As part of multilateral fiscal surveillance,  the Commission conducts both an ex ante assessment for the current and forthcoming years and an ex post assessment for the previous year based on each Member State's Stability or Convergence Programme.  The ex ante assessment allows for pointing out risks that a Member State does not comply with the requirements of the preventive arm, while the ex post assessment includes identifying actual or expected significant divergences from the requirement (i.e., the attainment of the medium-term budgetary objective or progress on the appropriate path towards it).  The in-year and ex ante assessments aim to inform the policy debate and provide guidance to countries. The ex post assessment may lead to a Council decision of a significant deviation from the adjustment path to the MTO which may then lead to the imposition of an interest-bearing deposit for euro area Member States. 

Enhanced Monitoring and Surveillance for Euro Area Member States

The Two Pack, which entered into force on May 30, 2013, supplements the architecture for multilateral economic coordination and fiscal surveillance by providing a common budgetary timeline and common budget rules for euro area Member States. The common budgetary timeline for euro area Member States is as follows, combining national processes with a common rendez-vous at the European level:

  • 30 April: national medium-term fiscal plans made public with Stability Programmes and sent to the EU.
  • 15 October: draft budget for the central government made public, along with main parameters of the draft budget plans for the other sub-sectors of the general government, and, with the draft budget plan, sent to the EU.
  • 31 December: Budget Laws for the central government adopted and made public.

The procedures complement and work in tandem with the European Semester and the Directive on national fiscal frameworks contained in the Six Pack economic governance reform package. 

As part of this common timeline, aimed to improve coordination and surveillance at the euro area-level, all euro area Member States will submit by mid-October their draft budgetary plans containing a detailed presentation of the planned budget for the forthcoming year. The Commission will examine and provide an opinion on each of the plans; in case of severe non-compliance of a plan with the obligations under Stability and Growth Pact, the Commission will request that a revised plan be submitted.

This exercise means that the Commission provides an independent assessment of each Member State's budgetary plan before it becomes law.  For the euro area as a whole, it provides a comprehensive overview of the budgetary outlook for the forthcoming year, which will allow discussions to take place on that basis.

As this coordinated assessment falls during the second half of the calendar year, the Autumn exercise provides an opportunity for Member States to incorporate recommendations from the current year's European Semester into draft national budgets and provides an important milestone to assess whether the orientations contained in the stability programmes and assessed by the European Commission and the Council during the European Semester have been translated into concrete plans. The annual cycle of surveillance with the Two-Pack is as follows:

Overview of SCPs and national reform programmes (NRPs)

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