Coordination of economic policies and surveillance of budgetary policies

KEY POINTS

The rules cover the following.

The European semester

The Council and the Commission, with the European Parliament’s involvement, carry out multilateral surveillance based on high-quality independent statistics.

The semester includes:

• the formulation and implementation of surveillance of:
  • broad economic policy guidelines of the European Union (EU) and of the EU Member States,
  • country-specific recommendations,
  • recommendations on euro area economic policy,
  • employment guidelines, including the principles of the European Pillar of Social Rights and related country-specific recommendations;
• the submission, assessment and endorsement of national medium-term fiscal-structural plans and their subsequent monitoring through annual progress reports;
• surveillance in order to prevent and correct macroeconomic imbalances.

Member States:

• must take due account of the Council’s recommendations, which are based on Commission proposals, when taking key economic, social, employment, structural and budgetary decisions;
• may be provided with further recommendations or face a Commission warning and financial sanctions if they ignore the original recommendation and guidelines.

Reference trajectories¹

When a Member State with public debt above 60 % of its gross domestic product (GDP) or with a deficit above 3 % of GDP prepares a national medium-term fiscal-structural plan, the Commission provides the Member State and the Economic and Financial Committee with prior guidance in the form of a multiannual fiscal path (reference trajectory).

The reference trajectory is risk based and tailored to the Member State’s sustainability challenges to ensure that:

• the debt-to-GDP ratio:
  • is put, or remains, on a plausibly downward path, or at prudent levels below the 60 % of GDP threshold, by the end of a four-year period (adjustment period) without further budgetary measures,
  • decreases by a minimum annual average of 1 percentage point of GDP when the ratio is above 90 % and 0.5 percentage points when between 60 % and 90 %;
• the deficit:
  • is brought below 3 % of GDP by the end of a four-year adjustment period and remains below that level over the medium-term without further budgetary measures,
  • continues to decrease until it provides a margin of 1.5 % of GDP in structural terms relative to the 3 % of GDP reference value;
• the adjustment effort is linear, as a rule;
• the adjustment period can be extended from four to up to seven years when underpinned by a specific set of reform and investment commitments – in such a case, the effort over the life of the national medium-term fiscal-structural plan should at least be proportional to the total effort;
• there is consistency with the corrective path recommended under the excessive deficit procedure, if applicable.

The Commission:

• uses a replicable, predictable and transparent methodology to determine whether a Member State’s debt ratio is on a downward path or remains at a prudent level;
• sends the following to Member States before they submit their national medium-term fiscal-structural plan and to the Economic and Financial Committee:
  • a reference trajectory (for Member States with public debt above 60 % of GDP or deficit above 3 % of GDP) and the corresponding structural primary balance,
  • the technical information and the corresponding structural primary balance, if requested by a Member State with public debt below 60 % of GDP and deficit below 3 % of GDP,
  • the underlying medium-term public debt projection framework and results;
  • its macroeconomic forecast and assumptions.

National medium-term fiscal-structural plans

Member States, after consulting with civil society organisations, social partners, regional authorities and other relevant stakeholders, submit a national medium-term fiscal-structural plan to the Council and the Commission, covering a period of four or five years depending on the regular length of the legislative term of the Member State. Prior to the submission of the plan, the Member State holds a technical dialogue with the Commission.

The plan:

• sets out a fiscal path that meets the EU’s debt and deficit requirements;
• includes the Commission’s reference trajectory (for Member States with public debt above 60 % of GDP or deficit above 3 % of GDP);
• explains how the Member State will ensure the delivery of a relevant set of reforms and investment underpinning the extension of the adjustment period to a maximum of seven years where applicable;
• explains how the Member State will ensure the delivery of reforms and investments responding to the main challenges identified in the context of the European semester, and how the Member State will address the EU priorities of a fair green and digital transition, social and economic resilience, energy security and, where necessary, the build-up of defence capabilities;
• contains key economic and budgetary information.

The Commission examines the national plan and recommends that the Council either endorse it or request a revised plan. The Council must publicly explain when it does not follow the Commission’s recommendation (comply or explain).

Implementation of the national medium-term fiscal-structural plans

Member States submit a publicly available annual progress report to the Commission. The Commission closely monitors whether Member States follow the net expenditure path set out in the plan and endorsed by the Council, the implementation of the set of reforms and investment underpinning an extension of the adjustment period (where applicable) and the implementation of the broader reforms and investment pertaining to the European semester. At the request of the Member State, independent fiscal institutions also provide an assessment of compliance with the net expenditure path endorsed by the Council.

The European Fiscal Board:

• provides an ex post evaluation of the implementation of the EU fiscal governance framework;
• advises on the appropriate fiscal stance for the euro area and national economies;
• advises, at the request of the Commission or the Council, on implementing the Stability and Growth Pact;
• cooperates closely with independent fiscal institutions;
• makes suggestions for the future evolution of the fiscal framework.

The Council may allow for deviations from the net expenditure path:

• for all Member States when there is a severe economic downturn in the euro area or the EU as a whole, provided it does not endanger fiscal sustainability over the medium term (general escape clause);
• for a single Member State when exceptional circumstances outside that Member State’s control have a major impact on its public finances (national escape clause), provided that such a deviation does not endanger fiscal sustainability over the medium term.

Transparency and accountability

The Parliament is involved in a regular and structured way in the European semester process by:

• receiving the national medium-term fiscal-structural plans;
• having regular updates from the Council and Commission presidents on the multilateral surveillance and an annual report from the president of the Eurogroup;
• receiving wide-ranging economic and financial information from the Commission;
• being able to invite the presidents of the European Council, the Council, the Commission and the Eurogroup to discuss economic developments.

The regulation is applied in conjunction with Regulation (EU) No 1176/2011 on correcting macroeconomic imbalances and Regulation (EU) No 472/2013 on strengthening economic and budgetary surveillance of Member States.

The Commission:

• establishes an ongoing dialogue with Member States;
• may carry out monitoring missions in Member States;
• must publish a report by 31 December 2030, and every five years thereafter, on the implementation of the regulation.