EU aim: Quality and sustainability of public finances

Despite the Brussels jargon, the ten ‘Europe 2020 integrated guidelines’ should make Europeans sit up and take notice. These policy aims concern the bread and butter issues for this decade. Success or failure decides our jobs, pensions, living standards and quality of public services; in short: prosperity.

On 17 June 2010 at the European Council meeting, the heads of state or government are going to add their remarks to the proposed objectives ahead of final adoption.



The blog post Adopting EU broad economic policy guidelines (BEPGs) looked at the procedure and context, and the entry EU’s proposed BEPGs (broad economic policy guidelines) presented an overview of the BEPGs and their relationship with the guidelines for employment policies. Together they form the ‘Europe 2020 integrated guidelines’.



Public finances



The first guideline in the Ecofin Council’s report to the European Council (document 10262/10) is:

Ensuring the quality and the sustainability of public finances

The financial crisis and the economic downturn put severe strain on public finances, now seen in the form of the European sovereign debt crisis and the rude awakening in the eurozone.

Almost all EU member states now accumulate debt at an unsustainable pace, and many of the economies are burdened with heavy levels of government debt.

Among the most developed in the world, several EU members have been forced to call in the International Monetary Fund, and the IMF has undertaken to stand ready for the collective defence of the euro area.

During the last weeks and days, a number of member state governments have slammed on the brakes and hastily announced major budget cuts for the coming years, in some cases even with immediate effect.

Strikes, protests, social unrest and hardship are on the menu, not only in the so called PIIGS (Portugal, Ireland, Italy, Greece and Spain), but in most EU member states, not forgetting the difficulties in the new members in Central Europe.

Panicky reactions take the citizens by surprise and cause anger, but somehow the governments should be able to return to more sustainable and predictable policies.

The Ecofin proposal sketches a virtuous path towards better economic governance (page 8):

As part of comprehensive ‘exit strategies’ for the economic crisis, Member States should carry out ambitious reform programmes to ensure macroeconomic stability and the sustainability of public finance, improve competitiveness, and reduce macroeconomic imbalances and enhance labour market performance. Temporary measures introduced in response to the crisis should be withdrawn in a coordinated manner as appropriate when the recovery is secure. The withdrawal of the fiscal stimulus should be implemented and coordinated within the framework of the Stability and Growth Pact.

Quality and sustainability of public finances

Here is how the representatives of the member states see the common challenges and needed actions (page 12 to 13):

Guideline 1: Ensuring the quality and the sustainability of public finances


Member States should vigorously implement budgetary consolidation strategies under the Stability and Growth Pact (SGP) and in particular recommendations addressed to Member States under the excessive deficit procedure, and/or in memoranda of understanding, in the case of balance-of-payments support. In particular Member States should achieve consolidation in line with Council recommendations and meet their medium-term objectives in line with the SGP. Without prejudice to the legal framework of the SGP, this implies for most Member States achieving a consolidation well beyond the benchmark of 0.5 % of gross domestic product (GDP) per year in structural terms until debt ratios are on a solid declining path. Fiscal consolidation should start in 2011 at the latest, earlier in some Member States where economic circumstances make this appropriate, provided that the Commission forecasts continue to indicate that the recovery is strengthening and becoming self-sustaining.

In designing and implementing budgetary consolidation strategies should focus on expenditure restraint and prioritise growth-enhancing expenditure items within for example areas such as education, skills and employability, research and development (R&D) and innovation and investment in networks with positive impacts on productivity, where appropriate for example high-speed internet, energy and transport interconnections and infrastructure. Where taxes may have to rise, this should, where possible, be done in conjunction with measures to make tax systems more employment, environment and growth-friendly for example by shifting the tax burden towards environmentally harmful activities. Tax and benefits systems should provide better incentives to make work pay.

Furthermore, Member States should strengthen national budgetary frameworks, enhance the quality of public expenditure and improve the sustainability of public finances, pursuing in particular determined debt reduction, reform of age-related public expenditure, such as pensions and health spending, and policies contributing to raising employment and effective retirement ages to ensure that age-related public expenditure and social well-fare systems are financially sustainable.

Budget efficiency and quality of public finances are also important at the EU level.

Credibility?

Is it going to be different this time?

When reading the economic and employment guidelines for the decade ahead, we are confronted with the missed targets of the Lisbon reform agenda for growth and jobs, regulatory and supervisory failures regarding reckless financial operators and weak coordination of economic policies between member state governments, despite the Stability and Growth Pact.

The intentions and programmes have not been bad, but coordination, open or otherwise, between ‘sovereign’ member states can hardly be seen as a success story.

Since the Lisbon Treaty mainly leaves these policy areas and powers unchanged, credibility remains a big question.

It is not the sole prerogative of the United Kingdom to reframe questions of needed powers at the right level in sterile terms of ‘sovereignty’: the assured power for all to hang separately.

Vestigia terrent, said the fox.




Ralf Grahn

EU’s proposed BEPGs (broad economic policy guidelines)

Procedure and context were discussed in the blog entry Adopting EU broad economic policy guidelines (BEPGs) (9 June 2010).

The Ecofin Council approved a report on the BEPGs to the European Council 17 June 2010:



Report to the European Council on broad economic policy guidelines (document 10262/10; 20 pages)


The Recommendation on the BEPGs is linked with the coming Council Decision on the guidelines for employment policies. Legally, they are two distinct documents, but together they form the ‘Europe 2020 integrated guidelines’.


Here is an overview of these ‘Europe 2020 Integrated Guidelines’:

Guideline 1: Ensuring the quality and the sustainability of public finances

Guideline 2: Addressing macroeconomic imbalances

Guideline 3: Reducing imbalances in the euro area

Guideline 4: Optimising support for R&D and innovation, strengthening the knowledge triangle and unleashing the potential of the digital economy

Guideline 5: Improving resource efficiency and reducing greenhouse gases

Guideline 6: Improving the business and consumer environment and modernising the industrial base in order to ensure the full functioning of the internal market

Guideline 7: Increasing labour market participation and reducing structural unemployment

Guideline 8: Developing a skilled workforce responding to labour market needs, promoting job quality and lifelong learning

Guideline 9: Improving the performance of education and training systems at all levels and increasing participation in tertiary education

Guideline 10: Promoting social inclusion and combating poverty

The Council proposes that the BEPGs (Guidelines 1 to 6) are in force until 2014 without change. The member states design national reform programmes (NRPs) consistent with the ‘Europe 2020 integrated guidelines’.




Ralf Grahn

Adopting EU broad economic policy guidelines (BEPGs)

According to the Treaty on the Functioning of the European Union (TFEU), the EU member states regard their economic policies as a matter of common concern and they coordinate these policies in the Council (Article 121(1) TFEU).

The broad guidelines play an important part in this.

On a recommendation from the Commission, the Council formulates a draft for the broad guidelines of the economic policies of the member states and of the EU, and reports its findings to the European Council (Article 121(2) TFEU).



This is what the Council of the European Union (Economic and Financial Affairs, Ecofin) did 8 June 2010 (document 10689/10; page 9).

Next, the Council report on the broad economic policy guidelines (BEPGs) will be discussed by European Council, which will reach a conclusion at its 17 June 2010 meeting.

On the basis of this conclusion the Council (Ecofin) will adopt a recommendation setting out the broad economic policy guidelines, when it meets on 13 July 2010.



Europe 2020 strategy

A few words about the context:

The broad economic policy guidelines are crafted in the context of the Europe 2020 strategy for jobs and growth, practically the raison d’être for the second Barroso Commission.

The Spring European Council in March already discussed the European Commission’s Europe 2020 proposal, with its seven “flagship initiatives”:



Europe 2020 ─ A strategy for smart, sustainable and inclusive growth; Brussels, 3.3.2010 COM(2010) 2020 final (35 pages)




The European Council 25 to 26 March 2010 reached conclusions on the main elements of the Europe 2020 strategy (document EUCO 7/10), but the discussion will continue 17 June meeting, so the growth strategy and the BEPGs are going to be discussed at the same meeting.

Ecofin has given input on the Europe 2020 growth strategy as well.



Integrated guidelines

The European Council wants to consider macroeconomic, structural and competitiveness developments, as well as overall financial stability simultaneously.

Each year, the Council draws up guidelines on employment policies. The employment guidelines have to be consistent with the BEPGs (Article 148 TFEU).

Striving for improved consistency between policy areas, the institutions have tried to take a further step by shaping the BEPG recommendation and the employment guidelines into "integrated guidelines" setting a multi-annual framework for structural reforms to be carried out under the EU's new Europe 2020 strategy for jobs and growth.

On the basis of the integrated guidelines, member states will draw up national reform programmes setting out in detail the actions to be taken. Particular emphasis will be given to efforts to meet national targets and to measures to remove the bottlenecks that constrain sustainable growth at national level.


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The Europe 2020 growth strategy and the “integrated” broad economic policy guidelines (BEPGs) and employment guidelines show how different aspects of EU and government action are related. Therefore it is natural that they are discussed and adopted in parallel.




Ralf Grahn

European Council: Tasks

The current Article 4 of the Treaty on European Union (TEU) uses a sweeping formula to describe the tasks of the European Council (OJEU 29.12.2006 C 321 E/12):


Article 4 TEU

The European Council shall provide the Union with the necessary impetus for its development and shall define the general political guidelines thereof.


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General tasks

Impetus and general political guidelines cover all areas crucial for the development of the European Union. Without being an institution in the formal sense, the European Council is arguably the most important body setting the course for the European Union.

Its conclusions have set treaty reforms and other major developments in motion, but it also sets the limits to what the EU can achieve, taking into account the severe restrictions caused by consensus (unanimous) decision making.

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Specific tasks

Besides the general guidelines there are some provisions on specific tasks for the European Council.

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Reporting

According to the third paragraph of Article 4 TEU the European Council reports to the European Parliament after each meeting and annually:

The European Council shall submit to the European Parliament a report after each of its meetings and a yearly written report on the progress achieved by the Union.


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Meeting report

The Presidency Conclusions issued at the end of each European Council are the main instrument to communicate the results, but a livelier version is offered when the member state holding the Council Presidency reports to the European Parliament.

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Annual report

Subsidiarity and proportionality

According to the Protocol (No 30) on the application of the principles of subsidiarity and proportionality (1997) the Commission has an obligation to report annually on the application of Article 5 TEC. According to point 10 the European Council shall take account of the Commission report within the report on the progress achieved by the Union which it is required to submit to the European Parliament in accordance with Article 4 of the Treaty on European Union.

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CFSP and CSDP

The intergovernmental European Council makes the crucial decisions pertaining to the common foreign and security policy (CFSP), including the common security and defence policy (CSDP), according to Article 13(1) and (2) TEU:

1. The European Council shall define the principles of and general guidelines for the common foreign and security policy, including for matters with defence implications.

2. The European Council shall decide on common strategies to be implemented by the Union in areas where the Member States have important interests in common.

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European defence

If and when the progressive development of a common defence policy leads to a common (European) defence, the decision is taken by the European Council, according to Article 17(1) TEU:

1. The common foreign and security policy shall include all questions relating to the security of the Union, including the progressive framing of a common defence policy, which might lead to a common defence, should the European Council so decide. It shall in that case recommend to the Member States the adoption of such a decision in accordance with their respective constitutional requirements.

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CFSP referral to the European Council

The decisions under Title V on the common foreign and security policy are basically taken unanimously by the Council, but with the possibility for a member state to abstain (Article 23(1) TEU).

Where the treaty foresees a decision by qualified majority, an opposing member state can use the so called emergency brake on grounds of important reasons of national policy. It must state its reasons and request that the matter be referred to the European Council for decision by unanimity (Article 23(2) TEU):

2. By derogation from the provisions of paragraph 1, the Council shall act by qualified majority:

— when adopting joint actions, common positions or taking any other decision on the basis of a common strategy,

— when adopting any decision implementing a joint action or a common position,

— when appointing a special representative in accordance with Article 18(5).
If a member of the Council declares that, for important and stated reasons of national policy, it intends to oppose the adoption of a decision to be taken by qualified majority, a vote shall not be taken. The Council may, acting by a qualified majority, request that the matter be referred to the European Council for decision by unanimity.

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Enhanced cooperation in criminal matters

A referral to the European Council is possible with regard to a decision to establish enhanced cooperation in an area of police and judicial cooperation in criminal matters (Title VI). The detour delays but does not stop the decision, if the requirements are fulfilled (Article 40a(2) TEU):

A member of the Council may request that the matter be referred to the European Council. After that matter has been raised before the European Council, the Council may act in accordance with the first subparagraph of this paragraph.


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Enhanced cooperation generally

Enhanced cooperation between member states in an area referred to in the Treaty establishing the European Community can be referred to the European Council, but it does not stop the pioneering group from moving ahead after the discussion (Article 11(2) TEC):


A member of the Council may request that the matter be referred to the European Council. After that matter has been raised before the European Council, the Council may act in accordance with the first subparagraph of this paragraph.


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Broad economic policy guidelines

The European Council formulates conclusions on the broad economic policy guidelines (BEPGs), according to Article 99(2) TEC.

The spring (March) European Council is traditionally the venue for economic policy and reform, including the BEPGs and the Lisbon Agenda for Growth and Jobs.

In a union with a (partly) common currency, but with national fiscal and economic policies, the European Council meeting starting tomorrow 18 March 2009 has its plate full in the middle of the serious financial crisis and economic recession.

This time the conclusions would have to be ground-breaking, if the European Council wants to turn the tide:

2. The Council shall, acting by a qualified majority on a recommendation from the Commission, formulate a draft for the broad guidelines of the economic policies of the Member States and of the Community, and shall report its findings to the European Council.

The European Council shall, acting on the basis of the report from the Council, discuss a conclusion on the broad guidelines of the economic policies of the Member States and of the Community.

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ECB reporting

Article 113(3) TEC adds the European Council to the addressees of reporting by the European Central Bank (ECB), almost as an afterthought:

3. The ECB shall address an annual report on the activities of the ESCB and on the monetary policy of both the previous and current year to the European Parliament, the Council and the Commission, and also to the European Council. The President of the ECB shall present this report to the Council and to the European Parliament, which may hold a general debate on that basis.


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Joint employment report

The European Council adopts conclusions (during its spring meeting) on the joint employment report by the Council and the Commission, according to Article 128(1) TEC:

1. The European Council shall each year consider the employment situation in the Community
and adopt conclusions thereon, on the basis of a joint annual report by the Council and the
Commission.


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Conclusion

The European Council has set in motion the major developments of the European Union during the last decades, but the construction is plagued by inadequate rules, highlighted by the recession.

Given that, what can we expect from the next two days?


Ralf Grahn

EU: Broad economic policy guidelines I

EU economic policy coordination tries to bridge the gap between the single currency, the euro, and national economic policies.

The Treaty establishing the European Community (TEC) treats the economic policies of the member states as a common concern. The Council coordinates the economic policies by adopting broad economic policy guidelines (BEPG). The Commission reports on and the Council monitors the economic developments.

If the economic policies of an EU member state are inconsistent with the guidelines or risk the economic and monetary union (EMU), the Council can adopt recommendations, which may be made public.

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Article 99 of the Treaty establishing the European Community (TEC) is found in the latest consolidated version of the current treaties, published in the Official Journal of the European Union 29.12.2006 C 321 E/82-83:

Part Three – Community policies

Title VII – Economic and monetary policy

Chapter 1 – Economic policy

Article 99

1. Member States shall regard their economic policies as a matter of common concern and shall coordinate them within the Council, in accordance with the provisions of Article 98.

2. The Council shall, acting by a qualified majority on a recommendation from the Commission, formulate a draft for the broad guidelines of the economic policies of the Member States and of the Community, and shall report its findings to the European Council.

The European Council shall, acting on the basis of the report from the Council, discuss a conclusion on the broad guidelines of the economic policies of the Member States and of the Community.

On the basis of this conclusion, the Council shall, acting by a qualified majority, adopt a recommendation setting out these broad guidelines. The Council shall inform the European Parliament of its recommendation.

3. In order to ensure closer coordination of economic policies and sustained convergence of the economic performances of the Member States, the Council shall, on the basis of reports submitted by the Commission, monitor economic developments in each of the Member States and in the Community as well as the consistency of economic policies with the broad guidelines referred to in paragraph 2, and regularly carry out an overall assessment.

For the purpose of this multilateral surveillance, Member States shall forward information to the Commission about important measures taken by them in the field of their economic policy and such other information as they deem necessary.

4. Where it is established, under the procedure referred to in paragraph 3, that the economic policies of a Member State are not consistent with the broad guidelines referred to in paragraph 2 or that they risk jeopardising the proper functioning of economic and monetary union, the Council may, acting by a qualified majority on a recommendation from the Commission, make the necessary recommendations to the Member State concerned. The Council may, acting by a qualified majority on a proposal from the Commission, decide to make its recommendations public.

The President of the Council and the Commission shall report to the European Parliament on the results of multilateral surveillance. The President of the Council may be invited to appear before the competent committee of the European Parliament if the Council has made its recommendations public.

5. The Council, acting in accordance with the procedure referred to in Article 252, may adopt detailed rules for the multilateral surveillance procedure referred to in paragraphs 3 and 4 of this Article.

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We notice that the Council acts on a recommendation by the Commission, when the economic policies of a member state are not consistent with the broad guidelines.

Next, we look at the corresponding proposal of the European Convention.


Ralf Grahn