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According to the Lisbon Treaty's Article 121 Member States regard their economic policies as a matter of common concern and coordinate them in the Council. After the transition to the euro on 1 January 1999, euro area countries changed to a common monetary policy. The other economic poli-cies are not common but are coordinated according to a number of provi-sions.
The coordination is exercised within the framework of a range of procedures followed in the first half of each year called the European Semester. During the European Semester the Council determines, based on recommendations from the Commission, which Member States are going to be noticed regard-ing a correction of their economic policy. The Council also determined whether Member States noticed previously have complied with the recommendation.
The structure of the European economic cooperation is described in the Commission's website "EU economic governance", where also the relevant legal instruments can be found The following is a review of the main elements of the economic policy co-operation in the EU.
Multilateral surveillance (broad guidelines)
The Council decides on the broad guidelines for the Member States and the Union's economic policies. The guidelines apply to all EU countries. In or-der to ensure closer coordination of the economic policies and lasting con-vergence of Member States' economic results the Council shall, based on reports from the Commission, survey the economic development in each Member State and in the Union together with the compliance of economic policies with the broad guidelines. This is called multilateral surveillance.
Stability and Growth Pact
According to the Lisbon Treaty's Article 126 Member States shall avoid excessive public deficits, and reference values are stipulated in an annex to the Treaty. As a benchmark, the public budget deficit must not exceed 3 per cent of GDP, and the public debt maximum is 60 per cent of GDP.
In order to ensure that the rules on excessive public deficits are lastingly observed, EU countries have adopted the Stability and Growth Pact. The Pact commits all EU countries to a balance or surplus on public sector finances in the medium term. Euro area countries can be subject to a penalty if they do not act sufficiently to correct an excessive public deficit.
The Stability and Growth Pact consists of a preventive and a corrective part. The preventive part contains the rules that Member States must comply with in order to avoid having an excessive public deficit. The corrective part of the Pact concerns the rules for Member States for which an excessive public deficit is established.
Evaluation of the progress towards medium term budgetary objectives is done on the basis of the structural budget balance, that is, the public sector balance net of cyclical effects and one-off measures. For euro area countries and countries in ERM2, of which Denmark, this measure is stipulated to between -1 and 0 per cent of GDP or higher.
The annual improvement in the structural budget balance necessary to achieve the medium term objective must be no less than 0.5 per cent of GDP. The required budgetary improvement is larger if public sector debt exceeds 60 per cent of GDP. Countries with public sector debt larger than 60 per cent of GDP shall reduce the difference between the current debt level and the reference value of 60 per cent of GDP with on average 1/20 per year measured over the last three years.
Macroeconomic imbalances
An alert mechanism is established to allow for early detection and control of macroeconomic imbalances. The surveillance is carried out by the Commission based on a scoreboard prepared in cooperation with the Parliament and the Council and consisting of a number of indicators that may identify internal or external imbalances in Member States.
According to the excessive imbalances procedure, established to avoid macroeconomic imbalances, the Council determines based on recommendations from the Commission, which Member States are going to be noticed regarding a correction of their economic policy. The Council also determined whether Member States noticed previously have complied with the recommendation. Euro area countries can be subject to a penalty if they do not act sufficiently to correct an excessive macroeconomic imbalance.
The Euro+ Pact
The Euro+ Pact is adopted by 23 Member States, of which all euro area countries. The Pact is based on the Europe 2020 Strategy and commits participants to close coordination of the economic policy regarding competitiveness and economic convergence. Denmark participates in the pact. It is described in the Commission's website
The Fiscal Compact
The Fiscal Compact is a treaty on strengthened fiscal cooperation adopted by all EU countries except UK the Czech Republic. The Fiscal Compact contains the same fiscal rule regarding structural budget balance as the Stability and Growth Pact plus an automatic correction mechanism that enters into force in case of deviation from the rule. It also contains an agreement on implementation of the fiscal rule and the correction mechanism in na-tional legislation.
Stability mechanisms (firewalls)
To safeguard the stability of the euro area as a whole and to help individual euro area countries in financial difficulties or under market pressure, a number of financial arrangements have been set up:
1) The European Financial Stability Facility (EFSF) and the European Financial Stability Mechanism (EFSM) are temporary financial arrangements. Objectives and resources of the EFSF are described in the EFSF's website
2) Bilateral loans to Greece, Ireland and Portugal.
3) The European Stability Mechanism (ESM) is a permanent financial arrangement.
The total amount of bilateral and EFSF/EFSM-loans to Greece, Ireland, and Portugal plus the lending capacity of the ESM amounts to 800 bn. euro.
Only euro area countries can borrow under the stability mechanisms. |
