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The European Semester for economic policy coordination provides EU input into the national economic policy-making process of every country. However, there still is an important hurdle to be cleared - the lack of sufficient democratic legitimacy structures for such coordination and integration. The European Parliament believes that tighter economic governance needs to be supported by tighter democratic control. Closer integration must include ways to legitimise such action.
Why is further economic integration needed?
At the launch of the euro, economic integration was only partially achieved. Many economists, as well as the MEPs then making up the European Parliament, warned that this could pose a problem for the eurozone. There was however insufficient political will among governments for true economic integration to happen. The current crisis has exposed the flaws of a monetary union without economic union.
Why does the European Semester matter?
The European Semester provides the EU policy framework within which national economic policies and national budgets are to be designed for the year. In the European Semester process, the Commission and the Council indicate to each country where it needs to focus and which reforms it should carry out.
The European Semester therefore means that an EU country is no longer able to conduct its economic policy in complete isolation from other EU countries. This is an integral part of the process for economic integration and, in the longer term, a step towards real economic union.
Why does the Semester need more visibility?
The fact that the European Semester does not have the visibility which a process of such importance should have is a fundamental problem, because it aggravates an acute lack of transparency and accountability for what is proposed and decided.
The European Semester was initially framed as a technocratic exercise, which had no binding legal structure. Since 2011, at the insistence of MEPs during negotiations on the economic governance "six-pack", it was given more legal weight, which should be a first step towards increasing its visibility. However, substantial further work is needed to bring out the Semester's political dimension.
The issue that urgently needs to be addressed is that the transfer of powers to EU level required by the Semester has not been matched by improvements in democratic representation and accountability. This in turn has led to murky policy-making. The European Parliament is working to improve the visibility of this process, for instance through "economic dialogues" (public hearings) with the other EU institutions and countries. This serves as part of the "accountability check" on the decisions taken. For example, in July Parliament held a public hearing with the Council on the same day that it adopted country-specific recommendations as to how to implement the "comply or explain" principle included in the "six-pack". More comprehensive reforms to increase the visibility and accountability nonetheless remain necessary.
How does the European Semester affect national economic policies?
The most concrete element of the Semester that affects Member States' economic and budgetary policies is the country-specific recommendations (CSRs), proposed by the Commission and adopted by the Council in July. Not implementing these recommendations may trigger further steps through the EU economic governance tools, including the Stability and Growth Pact and the Macro-Economic Imbalance Procedure, both of which may ultimately lead to fines.
Do country-specific recommendations affect people's lives?
Yes. The recommendations influence national economic policies, which in turn affect people. Examples of recommendations given in the previous question point in this direction. A recommendation to liberalise a specific sector, for example the retail sector or network industries such as telecoms, gas or water, will automatically have an impact on the people working in those sectors and on consumers. Likewise, recommendations to reform a pension system or mortgages will affect what people have to pay, the age at which they can retire and how much pension they will receive.
How are the Semester, and notably recommendations to countries, democratically vetted?
Currently the only democratic vetting is done by national parliaments in giving a mandate to their governments to endorse the annual guidelines at the spring European Council and when the Council adopts country-specific recommendations (CSRs) in July. At the EU level, the Parliament holds economic dialogues with the other EU institutions, e.g. on how to implement the "comply or explain" principle for the Council when adopting the draft CSRs as proposed by the Commission. Parliament also gives an opinion, twice a year, on the functioning of the Semester.
The Semester can be effective only if it has broad democratic vetting, not least for transparency and accountability. Many MEPs feel that the whole process needs to be made more political (at both national and EU levels) and less technocratic. The people should have ultimate control over the process, precisely because it has tangible effects on their lives.
Where to now?
For Parliament, the Semester's success clearly depends upon it becoming more democratically accountable. Every improvement needed depends, directly or indirectly, on strengthening the accountability and transparency of the process. Improvements must therefore include stepping up pressure on players to justify their positions and give a more political dimension to the work involved. Making economic coordination more legitimate should in turn make it more effective.
The following events will provide pointers to where Parliament wishes to go with the European Semester: