| Author Details | (Compiler) |
|---|---|
| Author (Corporate) | European Information Hub |
| Publication Date | 2023-2024 |
| Content Type | Blog & Commentary, News, Overview, Policy-making |
Summary:Information Guide covering the legislative package adopted by the European Commission in April 2023 aimed at reforming the European Union's economic governance framework. Further information:The Economic and Monetary Union (EMU) was established by the Maastricht Treaty in 1992, and it combines a single monetary policy with decentralised fiscal and economic policies under the responsibility of Member States of the European Union (EU). The Maastricht Treaty recognised the need for sound fiscal policies and coordination of economic policies for an effective conduct of the single monetary policy and to ensure a stable and successful single currency in face of potential risks of spillovers among Member States and possible free-riding behaviour leading to excessive government deficits and debt levels. In light of these considerations, the Treaty requires Member States to regard their economic policies as a matter of common concern and to coordinate them within the Council. Among other aspects, it also established a requirement for Member States to avoid government deficits exceeding 3 % of GDP and to keep public debt levels below 60 % of GDP. The architecture was influenced by the experiences of high inflation in the 1970s and 1980s, and a conviction that economic and financial integration would be a powerful force of convergence and stabilisation within the monetary union. The framework evolved in waves over the years, with changes introduced in response to the emergence of new economic challenges, as well as on lessons gained in the implementation of the surveillance framework. In 1997, the Stability and Growth Pact (SGP) was established to strengthen the monitoring and coordination of national fiscal and economic policies to permanently enforce the deficit and debt limits established by the Maastricht Treaty for all Member States. Notably, it operationalised the deficit criterion of the Treaty via a corrective arm of the SGP (the Excessive Deficit Procedure - EDP) and it established a preventive arm to avoid the build-up of excessive deficit. In the early 2000s, some countries experienced difficulties in adhering to the nominal deficit targets of the SGOP in a recessionary environment. In light of those experiences, the SGP was reformed to allow for greater consideration of economic conditions. The reform introduced in 2005 placed greater emphasis on the structural fiscal effort. The vulnerabilities exposed by the financial and Euro area debt crises after 2007 led the EU to introduce a series of new measures aimed at strengthening its economic governance and surveillance framework. Central to those efforts were the legislative packages known as the Six-Pack (2011) and the Two-Pack (2013). These packages aimed at a closer coordination of economic policy and sustained convergence in economic performance by strengthening budgetary surveillance under the SGP, and by requiring Member States to establish national fiscal frameworks. They also broadened the scope of surveillance to include macroeconomic imbalances. The revamped macroeconomic and budgetary surveillance were integrated into the European Semester, a common timeline for the coordination of economic and employment policies at EU level, and which was established in the same context. In February 2020, the European Commission launched a review of the legislative framework at the core of the EU's economic governance. It also presented a report reviewing the effectiveness of the EU's economic surveillance framework. The discussion was put on hold due to the COVID-19 (coronavirus) pandemic and eventually re-launched in October 2021. In November 2022, the Commission adopted a Communication setting out orientations for a reformed framework. On 26 April 2023, it adopted a legislative package seeking to implement the proposed reform. The package includes:
Some of these proposals were negotiated as part of a special legislative procedure. National leaders provided the political endorsement and renewed impetus to the legislative process during a meeting of the European Council in October 2023. The Council of the European Union eventually adopted its general approach to the package on 21 December. The plenary of the European Parliament adopted a negotiating position on the relevant proposals on 17 January 2024. An informal agreement between the co-legislators on a compromise text for the files was reached on 10 February. |
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| Subject Categories | Economic and Financial Affairs |
| Subject Tags | Economic and Monetary Union [EMU], Economic Governance | Situation |
| Keywords | Stability and Growth Pact [SGP] |
| International Organisations | European Union [EU] |
