Questions and answers: Building an economic governance framework fit for the challenges ahead

09 November 2022

What is the Commission presenting today? The Communication outlines the Commission's orientations for a reform of the economic governance framework, addressing challenges prevailing now and over the foreseeable future.

2. What are the main elements of the Communication?

The Commission's orientations seek to create a more transparent, simpler and integrated architecture for macro-fiscal surveillance to better deliver on the objectives of ensuring debt sustainability and promoting sustainable growth.

The central elements of these orientations are:

• National medium-term fiscal-structural plans that bring together fiscal, reform and investment policies of each Member State, within a common EU framework;
• Greater national ownership and better enforcement of the Council-endorsed fiscal-structural plans, as a counterpart of increased ownership of those paths by Member States;
• A more effective framework to detect and correct macroeconomic imbalances; and
• A more focused and streamlined post-programme surveillance framework, the framework assessing the repayment capacity of Member States having benefited from financial assistance programmes.

 

3. Why is the Commission presenting this Communication now?

Sound public finances that respond in a coordinated manner to the prevailing challenges and that help achieve common EU priorities have become increasingly important in the face of recent and current crises. This Communication responds to the need for a reformed framework that is fit for the challenges of this decade. Swift agreement on revising the EU economic governance framework would provide further evidence of the institutional robustness of the euro area, which rests on sustainable public finances and on preventing and addressing macroeconomic imbalances in all Member States and in the EU and the euro area as a whole. The operation of credible fiscal rules and surveillance of risks to macro-financial stability will also help the European Central Bank attain its goals, particularly as it faces the challenge of delivering on its mandate to maintain price stability while avoiding financial fragmentation in the euro area.

Reaching an agreement on the future of the economic governance framework is a pressing priority. The extension of the general escape clause until 2024 will provide Member States with the necessary flexibility to react quickly and effectively to the consequences of Russia's invasion of Ukraine and the current economic situation. At the same time, Member States and the Commission should reach a consensus on the reform of the economic governance framework ahead of Member States' budgetary processes for 2024.

4. Is the Commission recommending any legal changes to the Stability and Growth Pact and/or changes to the Treaty, i.e. the 3% of GDP deficit and 60% of GDP debt reference values?

In the Commission's view, a thorough reform of the EU economic governance framework will require legislative changes, but changes to the Treaty will not be necessary. The Commission will consider tabling legislative proposals on the basis of the Communication presented today and the ensuing discussions.

5. How are the findings of the public debate on the review of the EU's economic governance framework reflected in this Communication?

The Commission relaunched an important discussion on the future of the economic governance framework almost one year ago. Since then, an open and rich public debate has taken place, with contributions from citizens, EU institutions, national governments and a range of other stakeholders. The Commission has also engaged in useful technical discussions with Member States. 

Today's Communication builds on the elements of convergence that have emerged during these consultations.

 

6. How has the COVID-19 pandemic influenced the Commission's thinking on how to reform the economic governance framework?

Lessons learned from the successful EU policy response to the COVID-19 crisis, including the Recovery and Resilience Facility, have informed the review of the economic governance framework.

For example, Member States provided sizeable fiscal support in response to the COVID-19 crisis that, together with EU-level measures and instruments, and social safety nets and health systems at the national level, helped to mitigate the economic damage of the crisis. This has underlined the need for fiscal policy to act in a counter-cyclical manner, both in supporting the economy during crises and building up fiscal buffers in periods of economic growth. Investment in preparedness and resilience can also reduce the adverse economic impact of crises.

At the same time, the pandemic resulted in a significant increase in public and private sector debt ratios, underscoring the importance of reducing debt to prudent levels in a gradual, sustained and growth-friendly manner.

The crisis also confirmed that effective policy coordination is critical, including between different policy and funding tools, and between the EU and national levels.

7. How have lessons learned from the operation of the Recovery and Resilience Facility fed into this Communication?

Lessons learned from the set-up of the Recovery and Resilience Facility (RRF) have provided the Commission with inspiration for the orientations presented today.

In particular, the Commission has drawn insights from the RRF's commitment-based approach to policy coordination, with strong national ownership of policy design and outcomes, based on upfront guidance to Member States on investment and reform priorities....

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