Beyond consolidation, we need to act in two further areas: economic governance and structural reform, especially including reform of the financial system.
On 12 May, the Commission made substantial proposals to improve economic policy coordination in the EU. The fiscal framework of the EU, defined by the Stability and Growth Pact, has sound rules. But we can improve it with three main building blocks for reform:
Firstly, we need to synchronise EU surveillance with the national budgetary processes with a "European Semester". Member States should submit their Stability and Convergence Programmes and National Reform Programmes timely, so that they can benefit from early coordination at European level as they prepare their national budgets. We must also put more force behind the Pact – both when there is an Excessive Deficit but also earlier. The Pact must have sufficient teeth to ensure that all Member States exercise fiscal discipline that is not only good individually for the MS but a necessary condition for a smooth functioning of the common currency area.
Secondly, we must look beyond the budget and address macro-economic imbalances between Member States. Both strong exports, based on competitiveness, and domestic demand are important for our prosperity. Strong divergences between Member States can undermine cohesion, especially within the euro area. This must be tackled before it becomes a costly problem for all.
Thirdly, in the medium-to-long term we need to build a crisis resolution mechanism that is permanent. It is better to be safe than sorry.
Moreover, fiscal consolidation should be embedded in a strategy to lift productivity growth and employment rate. In our rapidly ageing societies, this is only possible through significant structural reforms in all areas of economic activity. Last week, the European Council adopted the "Europe 2020" growth strategy to this end.
Proposal on economic policy coordination
The 12 May 2010 proposal Rehn referred to contains analysis and suggested reforms regarding eurozone countries as a group and EU member states as a whole. It is the starting point for the various discussions taking place with a view to finding solutions to common challenges:
Commission Communication: Reinforcing economic policy coordination; Brussels, 12.5.2010 COM(2010) 250 final