The rationale of the European Semester
The European Semester was introduced in 2011 as the EU’s response to the weaknesses in the EU's economic governance revealed during the financial and economic crisis. The EU took a wide range of measures to enhance policy coordination and to strengthen its economic governance as the best way to return to sustainable economic growth, job creation, financial stability and sound public finances. This was done by adopting new legislation which strengthened the Stability and Growth Pact and by synchronising the timetables of the various existing policy coordination frameworks and by aligning the goals of national fiscal, economic and employment policies. The areas of surveillance and coordination were extended beyond fiscal issues to broader macroeconomic imbalances and related policies under the Macroeconomic Imbalance Procedure.
Compared to the previous set-up, the revamped legal framework allowed for more regular monitoring and a swifter response in case of problems. It also allowed for greater involvement of the European Parliament and national legislatures, social partners and other relevant stakeholders at all levels.
The European Semester ensures that Member States discuss their economic, social and budgetary plans with their EU partners at specific times in the first half of the year – hence the term Semester – so that national action can be accordingly taken in the second part of the year, notably with the adoption of the budgets for the subsequent year. This early interaction allows them to comment on each other's plans and monitor progress collectively. It also allows them to take better account of common challenges.
The European Semester cycle starts in autumn with the publication of the Commission's Annual Sustainable Growth Survey (ASGS), the Alert Mechanism Report (AMR), the proposal for a Joint Employment Report, proposal for recommendations for the euro area and Commission opinions on the draft budgetary plans of euro area Member States.
The ASGS sets out general economic and social priorities for the EU and provides Member States with policy guidance for the following year.
The Alert Mechanism Report is the starting point of the annual Macroeconomic Imbalance Procedure (MIP). The MIP aims to identify potential risks early on, prevent the emergence of harmful macroeconomic imbalances and correct the imbalances that have already materialised.
The recommendation for the euro area addresses key issues for the functioning of the euro area and provides orientation on concrete actions for their implementation, which are later reflected in the country-specific recommendations where appropriate. The euro area recommendation allows for better integration of the euro area and national dimensions of EU economic governance and therefore strengthens the surveillance and coordination process. It is accompanied by the report on the euro area, a Commission staff working document.
Moreover, the proposal for a Joint Employment Report analyses the employment and social situation in the EU, related challenges and the policy responses by Member States.
The Council adopts the euro area recommendation on the basis of the Commission’s recommendation in February. EU leaders usually consider the Annual Sustainable Growth Strategy, the Alert Mechanism Report, the euro area recommendation and the proposal for a Joint Employment Report in March. On that basis, they provide guidance on a common direction for the EU and euro area as a whole.
In April, Member States present their national reform programmes and their stability or convergence programmes (three-year budget plans, the former for euro area countries, the latter for other EU Member States) to the Commission. In these documents, countries report on the specific policies they are implementing and intend to adopt to boost jobs and growth, prevent or correct macroeconomic imbalances, and on their concrete plans to ensure compliance with EU’s fiscal rules as well as with any outstanding country-specific – and where applicable euro area – recommendations. Starting from the 2022 cycle, the national reform programmes also fulfil one of the two bi-annual reporting requirements of Member States under the Recovery and Resilience Facility.
In May, the Commission publishes a country report for each Member State. The reports take stock of implementation of the recovery and resilience plans, analyse the economic and social developments and challenges facing Member States and provide a forward-looking analysis of their resilience. For those Member States selected in the Alert Mechanism Report, the country report includes the summary of the findings of the so-called "in-depth review" analysing potential macroeconomic imbalances in the Member State.
Together with the country reports, the Commission presents a series of proposals for country-specific recommendations to Member States, to be subsequently adopted by the Council. Governments then are urged to incorporate the recommendations into their reform plans and national budgets for the following year..
For euro area Member States, budgetary monitoring takes place also in the autumn. Euro area Member States present to the Commission draft budgetary plans for the following year by 15 October. The Commission then assesses the plans against the requirements of the Stability and Growth Pact and the relevant country-specific recommendations. It issues an Opinion on each of the budgetary plans in November, so that this guidance is taken into account when national budgets are finalised. Euro area Finance Ministers then discuss the Commission's assessment of the draft budgetary plans in the Eurogroup.
Throughout the year, the Commission is in dialogue with Member States' authorities and stakeholders to closely monitor policy implementation.
The adaptation of the European Semester following the Covid-19 pandemic
The outbreak of the COVID-19 pandemic caused an unprecedented global public health crisis, which entailed a severe decline in economic activity. Member States had to address the public-health emergency and to support economic activity. The forceful policy response at the national and EU level has cushioned the impact of the crisis on Europe's economic and social fabric.
The Commission decided to activate the general escape clause of the Stability and Growth Pact in response to the onset of the Covid-19 pandemic. The clause allowed Member States to deviate from the usual government deficit-to-GDP and government debt-to-GDP limits on a temporary basis to be able to provide the required massive fiscal response to counter the adverse effects of the pandemic.
The EU also adopted an ambitious policy response by adopting in a record-time an unprecedented volume of funding for the economic recovery and to accelerate the green and digital transitions. This is the so-called NextGenerationEU. It consists of a Recovery and Resilience Facility which amounts to EUR 723.8 billion (EUR 385.8 billion in loans, EUR 338 billion in grants) available to support reforms and investments enshrined in recovery and resilience plans approved by the Council for the period 2021-2026. The aim is to mitigate the economic and social impact of the coronavirus pandemic and make European economies and societies more sustainable, resilient and better prepared for the challenges and opportunities of the green and digital transitions.
The European Semester was temporarily adapted to this new context, also to coordinate it with the Recovery and Resilience Facility. The 2022 cycle is a transition year to a new economic governance set-up.
The continuing gradual return to a ‘new normal’ of the European Semester in 2022
The European Semester will resume its broad economic and employment policy coordination in 2022, while evolving in line with the implementation of the Recovery and Resilience Facility. The implementation of the Facility will require an adaptation the European Semester to take into account possible overlaps and ensure complementarity. The implementation of the plans will drive Member States’ reform and investment agendas for the years to come. The European Semester, with its broader scope and multilateral surveillance, will complement the implementation of the recovery and resilience plans.