Reinforced macro-economic, budgetary and structural surveillance in the EU

The European Commission today adopted a Communication outlining a set of tools to strengthen the economic governance of the EU and the euro area. Its cornerstone is the implementation of enhanced surveillance of fiscal policies, macroeconomic policies and structural reforms. Enhanced surveillance will be based on a “European semester” and comes with an array of sanctions to prevent or correct the excesses that could jeopardize the financial stability of the EU and the euro area. The Stability and Growth Pact will be reinforced with particular attention given to the evolution of debt as well as public deficits (more details in the MEMO/10/288).

The European Commission President José Manuel Barroso said EU needs to strengthen its economic governance. Although it disposes of several instruments for the coordination of economic policy, the crisis has put in evidence that these have not been fully used and that there are certain gaps in the current european system of governance. The Commission has thus decided to put forward ambitious proposals which will bring concrete progress. The European Semester is going to give coherence to the European monitoring. This is logical and necessary.

European Commissioner for Economic and Monetary Affairs, Olli Rehn, stressed the need for greater coherence, greater coordination and foresight in the preparation of national budgets and national reform plans to ensure Europe’s financial stability and achieve better growth while creating employment, in line with the objectives of the strategy set out in Europe 2020. EU needs more coordination, but also a more rigorous implementation of the rules including dissuasive sanctions to prevent slippage and regain confidence.

The proposals of this toolkit are based on three main blocks of reform. Firstly, they call for a synchronization of the European Union surveillance with the national budget procedures in a single framework, the “European semester.” Member states must submit their Stability and Convergence Programmes and their National Reform Programmes simultaneously. This will facilitate a better integrated and more effective ex-ante policy co-ordination at the European level. In the second part of the year, this review should guide the drafting of domestic budgets for the following year.

The Stability and Growth Pact should be reinforced both on the preventive and corrective arms. The Commission proposes to require a faster pace of progress towards budgetary balance for countries with high level of debt or pronounced risks in terms of debt developments. The debt criteria should be applied effectively through a clear and simple numerical benchmark for defining a satisfactory pace of debt reduction.

Secondly, beyond budgetary surveillance, the Commission proposes to address the macroeconomic imbalances among member states, which weaken the cohesion of the EU and in particular the euro area. Early detection through a scoreboard of indicators together with a more constraining European framework would spur correcting increasing divergences.

Thirdly, the EU-wide surveillance of structural reforms in Member States should ensure that sufficient progress is made in line with the overall goals of the Europe 2020 strategy for a more sustainable and more environmentally friendly growth that is based on knowledge and creates jobs, as adopted at the European Council in June 2010.

The Commission invites the ECOFIN Council of 13 July to confirm the launch of the surveillance cycle under the “European semester” in January 2011 and to give its green light to the revised Code of Conduct of the Stability and Growth Pact. The Commission will present formal legislative proposals by end- September.

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