The Legislative Package on Economic Governance GUE/NGL Conference Crisis & EU Governance: The Left Response Brussels, 31 March 2011 Declan COSTELLO European Commission – DG ECFIN

Outline Legislative package as part of a wider response to the economic crisis A closer look at the proposal to identify and correct macro-economic imbalances The enhanced role of the European Parliament in economic governance

Motivations Need for improved economic surveillance of Member States’ economies broadened to better cater for macro-economic imbalances and competitiveness developments, in particular within the euro area. deepened: strengthen domestic fiscal frameworks and ensure increased focus on public debt better integrated across policy areas and become more integrated into the national policy planning cycle in an ex-ante way (EU Semester) Need for improved governance structures, including: More effective enforcement mechanisms; stronger surveillance role for the Commission, and reinforced commitment of ECOFIN/ Eurogroup better institutional settings and ownership at national level.

Legislative package on economic governance Six legislative proposals consisting of: Strengthening the SGP inter alia through a clear benchmark for debt reduction A new framework to monitor and prevent macroeconomic imbalances Minimum requirements for national fiscal frameworks. State of Play Council adopted its general approach on 15 March ECON Committee vote is scheduled for 19-20 April + trialogues Adoption aim for by June 2011

The legislative package is part of wider changes in EU economic governance Wider economic governance developments: Introduction of EU Semester New governance of financial markets New European Systemic Risk Board (ESRB) New European Supervisory Authorities (ESAs) Reinforce regulatory framework for producers and consumers European Stability Mechanism Support for Member States in financial difficulties Europe 2020 Strategy for growth and employment

Part of a wider response Legislative Package Stability & Growth Pact Excessive Imbalances Procedure National Fiscal Frameworks Financial Stability European Systemic Risk Board European Supervisory Authorities Reinforcing regulatory framework Europe 2020 Strategy EU Flagships & Targets Structural reforms Adjustment support EFSF ESM Balance of Payments Facility

Euro Plus Pact Content: Competitiveness: wage setting, opening sheltered sectors, improving education and R&D, improving the business environment Employment: flexicurity, life long learning, tax reforms Fiscal sustainability: pension reforms, national fiscal rules Financial stability: national legislation for banking resolution, stress tests Tax policy coordination: structured discussion, proposal for a common corporate tax base Governance: Heads of State taking political leadership, making use of and strengthening existing instruments, integrated into the European Semester. Role of Commission: “strong central role” in the monitoring of the implementation of commitments

European economic semester January March April February May June July Annual Growth Survey Policy guidance including possible recommendations European Commission Autumn: Peer review at EU level Debate & orientations Finalisation & adoption of guidance Council of Ministers European Parliament Debate & orientations European Council Annual economic & social summit Endorsement of guidance Autumn: Decisions at national level Member States Adoption of National Reform Programmes (NRPs) & Stability and Convergence Programmes (SCPs)

Key features of proposals on SGP More prominence to the debt criterion More prudent fiscal stance on good times A reformed enforcement regime with earlier and graduated sanctions National fiscal frameworks to better reflect the priorities of EU budgetary surveillance European Commission

Macro-economic imbalances A framework for enhanced and broader macro-economic surveillance for all Member States focussing on imbalances. preventive arm to avoid the build-up of imbalances corrective arm with strong enforcement mechanisms for euro area members where spill-overs are stronger. European Commission

Preventive Arm Alert mechanism In-depth review January March April February May June July Alert mechanism Commission present report based on indicators (scoreboard) and economic reading identify Ms where potential risks exist ECOFIN/Euro group discuss and adopt conclusions for the Commission to take account of. In-depth review Commission prepares in depth country studies, using much wider set of indicators and analytical tools, and takes account of other Council recommendations plans in SCP/ NRPs; warnings or recommendations from the ESRB. No problem Procedure stops. Imbalance exists Commission/Council recommendations under Article 121.2 Severe imbalance Commission/Council recommendation on the existence of an « excessive imbalance » and corrective actions

Corrective Arm Commission/ Council: Commission/ Council: Adopt a recommendation under Article 121.4 - Establishing the existence of an excessive imbalance specify the nature of imbalance expected policy responses set deadlines for taking corrective action to be presented in a corrective action plan (CAP) set deadlines for monitoring cycle Commission/ Council: assess CAP within 2 months Sufficient Council opinion endorsing CAP and EIP in abeyance Insufficient Invitation to amend CAP within a new deadline Member State submits monitoring reports based on agreed deadlines which are assessed by Commission /Council Sufficient: Council place EIP in abeyance and monitoring resumes according to agreed deadlines Insufficient revised A121.4 rec, new deadlines for action and follow-up Member State: submits a Corrective Action Plan within the deadline specified in A121.4 rec. specifcy concrete actions Specify specific deadline for each action Member State: Submits new CAP

An enhanced role of EP in economic governance Adoption of legislative package: Four decided by the ordinary legislative procedure (co-decision right for the EP) Parliament consulted on two other proposals What role for EP in EU semester? EP orientation debate on Annual Growth Survey (AGS) at the beginning of the EU semester Article 121(5) requires Council and Commission President to inform Parliament on recommendations Political sanctions/peer pressure