The European Union and North America: An Inevitable Partnership? ECSA-C 11th Biennial Conference Comparing the Economic Governance in the New EU Member States - Is the European Semester a Success or Failure? Visnja Samardzija and Ivana Skazlic Institute for Development and International Relations IRMO, Zagreb, Croatia

▪ The paper has been generated from the project “Policy Observatory in Croatia (POLO-Cro28)”, IRMO, Zagreb ▪ Funded by the European Commission through the ERASMUS + programme, Jean Monnet Support to Institutions ( )

Key points ▪ What are the main EU approaches to economic governance in the period after the crisis? ▪ To which extent was the implementation of European Semester successful in new Member States? ▪ To which extent it resulted in the desired impact on growth and stabilization of economies? ▪ How are the new EU member states meeting their country specific recommendations (CSR)? ▪ Mixed experiences of Croatia, Czech Republic, Hungary, Slovakia and Slovenia

The reasons behind the European Semester ▪ the main instrument of economic policy coordination at EU level ▪ annual cycle of policy guidance, coordination and monitoring, as a response to the crisis ▪ supports implementation of Europe 2020 Strategy and ensures compliance with economic and fiscal rules in the context of the Stability and Growth Pact (SGP) and the Macroeconomic Imbalance Procedure (MIP) ▪ in operation since 2011 – legal basis Art. 121 of the TFEU + specific provisions of the ‘Six pack’ legislation

Three components of the European Semester EUROPE 2020 STRATEGY (thematic surveillance) STABILITY AND GROWTH PACT (fiscal surveillance) MACROECONOMIC IMBALANCE PROCEDURE (macroeconomic surveillance) Education Employment Environmental and climate protection, energy efficiency R&D Fighting poverty and social exclusion Preventive arm Deficit <3% GDP Debt <60% Debt >60% which is decreasing Corrective arm Excessive Deficit Procedure Preventive arm 1. Alert Mechanism Report 2. In-Depth Reviews Corrective arm Excessive Imbalance Procedure European Semester Source: European Commission, 'Six pack' and 'Two pack' Regulative

The European Semester at a glance ▪ European Semester introduces ex-ante annual coordination of national economic policies during 6-month period ▪ The Commission conducts in-depth analysis of economic programs and structural reforms of every MS, issues CSRs and monitors their implementation on annual basis ▪ Participation in the European Semester is mandatory for all EU Member States! ▪ During a remaining 6-month period of a ‘National Semester’ the MS implement commonly agreed policies ▪ Sanctions

The European Semester for Economic Policy Coordination: Main steps and actors Source: Hagelstam, K. (2015) At a glance The European Semester: Main steps at the EU level. Economic Governance Support Unit, European Parliament Sept Oct. Nov. Dec. Jan. Feb. Mar. Apr. May. Jun. Jul. European Commission Council Eurogroup European Council Member States National Parliaments European Parliament Economic dialogues with other EU Institutions and member states Opinion on DBPs Presentation of AGS, AMR and EA recommendation s In-depth review of imbalances Assessment of implementation of CSRs Assessment of NRPs and SCPs Draft CSRs Surveillance and implementation f CSRs Assessment of DBPs Conclusions on AGS and AMR and adoption of EA recommendations Adoption of CSRs Policy guidance based on AGS and AMR Endorsement of CSRs Implementation of CSRs Submission of DBPs by Oct Submission of NRPs and SCPs Debate /resolution on Semester and CSRs Debate /resolution(s) on the AGS Article 13 conference EPW / Article 13 Conference

Implementation of country-specific recommendations (CSRs) by EU Member States, 2012–2014 Source: Gern, K.-J., Jannsen N., Kooths, S. (2015) Economic policy coordination in the euro area under the European Semester. Kiel Institute for the World Economy. Available at:

Implementation of country-specific recommendations (CSRs) by EU Member States, 2015 Source: Hradiský, A. (2016) At a glance Implementation of 2015 CSR. Economic Governance Support Unit, European Parliament

Addressing the weaknesses of implementation: Streamlined European Semester (2015) - improving frameworks and mechanisms - publishing CSRs for the euro area at the begining of the cycle; - lowering the number and scope of CSRs; focus on priorities - greater emphasis on employment and social performance; - enhancing a democratic dialogue - supporting reforms from ESI Funds and technical assistance

Examples of five new EU Member States ▪ Croatia, Czech Republic, Hungary – non Eurozone members ▪ Slovakia, Slovenia – Eurozone members ▪ New EU members, 5th and 6th enlargement ▪ Similar economic and social challenges, geographical proximity ▪ Covered by or passed through Excessive Deficit Procedure

The government deficit as proportion of GDP in selected EU Member States(in %) Source: Eurostat data

General government gross debt as proportion of GDP in selected EU Member States (%) Source: Eurostat data

Excessive Deficit Procedure (EDP) in selected EU Member States – an overview EU MS Czech Republic EDP opened EDP closed Hungary EDP opened in 2004 EDP closed Slovakia EDP opened EDP closed Slovenia EDP opened EDP still ongoing Croatia EDP opened EDP still ongoing NOTE: In 2016 the EDP covers 9 countries. The EDP was closed for 17 countries in the past years, while 2 countries are not covered by EDP at all. Source: European Commission

The status of selected new EU Member States under the Macroeconomic Imbalances Procedure of (MIP) YearNo imbalancesImbalances* Excessive imbalances* Excessive imbalances procedure 2012 Czech Republic Slovakia Hungary Slovenia Czech Republic Slovakia HungarySlovenia Czech Republic Slovakia Hungary Croatia Slovenia Czech Republic Slovakia Hungary Slovenia Croatia- 2016Czech Republic Slovakia Hungary SloveniaCroatia - NOTE: In 2016, out of 18 countries identified for in-debt review, 12 countries experience imbalances. EIP has not been initiated yet Source:

Number of CSRs under the SGP, MIP and Europe 2020 processes, in 2015 Source: Bénassy-Quéré, A. (2015) Economic policy coordination in the euro area under the European Semester. Available at:

Comparative overview of CSRs under European Semester in five selected countries (2015) Country-specific recommendations 2015 EU Member State Public finances and welfare systems Financial sector Labor market Product and services market EducationSocial inclusionAdministration Public finances Taxation Pension system Healthcare system Banking and access to finance Housing and private debt Labor market Labor taxation Wage-setting Services and network industries Innovation and business environment Education and skills Poverty and social inclusion Administrative modernization and rule of law Croatia Czech Republic Hungary Slovakia Slovenia Shaded cells in the table mark the field for which the selected Member State received recommendations. Source: European Commission,

Implementation of the 2015 CSRs under the European Semester in five selected Member States EU/Country level Full/Substantial Progress Some Progress No/Limited Progress Not yet Assessed Total Total CSR to EU Czech Republic031-4 Croatia015-6 Hungary01315 Slovenia121-4 Slovakia013-4 Source: Hradisky, Martin (2016). European Parliament. Economic Governance Unit. At a Glance. Implementation of the 2015 County Specific Recommendations. March 4, 2016

Conclusions ▪ Accomplishment of the European Semester: contribution to predictability and transparency of economic policies in the EU ▪ CSRs - the most important part for delivering reforms, but implementation is modest / low ▪ Eurozone members - stronger CSRs implementation ▪ Better implementation while under a financial assistance program; due to market pressure and/or due to high unemployment ▪ Normalisation of situation often „softens” reforms ▪ Political will of national authorities to implement reforms depends on eventual domestic consequences ▪ Implementation of CSRs varies with the electoral cycle

Conclusions ▪ Impact of recent modifications of the European Semester? Not visible yet… ▪ Support for facilitating implementation of reforms through EU Funds and technical assistance ▪ Existing shortcomings are strong argument for further improvements of the European Semester in order to increase efficiency ▪ Need to identify more clearly articulated priorities at European level, raise awareness