Economic policy

Economic policy covers a wide range of measures which governments use to manage their economy. These include monetary policy (money supply and demand), taxation, budget, job creation, etc.

In the European Union (EU), although economic policy is the responsibility of each EU country, there is considerable multilateral coordination of economic policies between the individual countries, particularly those which belong to the euro area, to ensure that European monetary union operates in the best way possible, and to ensure the alignment of EU countries with common aims and responsibilities.

• Article 3 of the Treaty on European Union sets out the EU’s aims, which include balanced economic growth, price stability, and economic and monetary union.
• Article 3 of the Treaty on the Functioning of the European Union (TFEU) gives the EU exclusive responsibility for monetary policy for EU countries which belong to the euro area.
• Article 5 TFEU sets out that economic policies should be coordinated within the Union.
• Title VIII TFEU deals with economic and monetary policy. It defines how economic policy coordination takes place and requires EU countries to carry out their national economic policies ‘with a view to contributing to the achievement of the objectives of the Union’.

Economic policy coordination includes: adopting broad economic policy guidelines and employment guidelines, monitoring economic developments to identify and correct risky or unsustainable policies, and macroeconomic discussions between the Council, the European Central Bank, the European Commission and social partners. The Stability and Growth Pact sets out rules to ensure that EU countries aim towards sound public finances and coordinate their fiscal policies.

Since 2008, in view of the difficulties the EU (particularly the euro area) had in dealing with the economic, financial and sovereign debt crisis, several reforms have been made:

1. The Stability and Growth Pact was strengthened by the Treaty on Stability, Coordination and Governance, which came into force in 2013. The 6 laws (‘6-pack’) which reinforce the Stability and Growth Pact and macroeconomic oversight of EU countries were adopted, as were 2 further laws (‘2-pack’) that provide for additional coordination and monitoring in the euro area.
2. The European semester, an annual policy coordination framework, was created. This aims to identify and correct macroeconomic imbalances between EU countries, and to supervise budget policy. The Commission also analyses each EU country’s structural reform policies, and then issues country-specific recommendations for action.
3. The creation of an integrated banking union which aims to align responsibility for supervision, resolution and funding at EU level and to ensure that euro area banks all comply with the same rules. Banks and their shareholders are liable for possible losses, not taxpayers.