On 9 November 2022, the Commission adopted a Communication setting out orientations for a reformed EU economic governance framework. Taking into account the key concerns over the current framework, these aim to strengthen debt sustainability and enhance sustainable and inclusive growth through investment and reforms. The communication is based on an online public consultation with stakeholders and Member States launched in February 2020 on the future of the EU’s economic governance framework.
The orientations seek to ensure that the framework is simpler, more transparent and effective, with greater national ownership and better enforcement, while allowing for strategic investment and reducing high public debt ratios in a realistic, gradual and sustained manner.
National plans to ensure debt sustainability and enhance sustainable growth, anchored in a common EU framework
The national plans would integrate fiscal, reform and investment objectives, including those to address macroeconomic imbalances where necessary, into a single holistic medium-term plan, thus creating a coherent and streamlined process. Member States would have greater leeway in setting their fiscal adjustment path, strengthening the national ownership of their fiscal trajectories.
A single operational indicator – net primary expenditure, i.e. the expenditure which is in a government’s control – would serve as a basis for setting the fiscal adjustment path and carrying out annual fiscal surveillance, thereby significantly simplifying the framework.
How would it work?
- 1Commission presents fiscal adjustment path
The Commission presents Member States with substantial or medium debt challenges with a reference multiannual fiscal adjustment path in terms of net primary expenditure covering a period of at least four years, based on a common methodology. This reference adjustment path should ensure that debt would be put on a plausible downward path, and that the deficit would remain credibly below the 3% of GDP reference value set out in the Treaty. It is proposed to move to a more risk-based surveillance framework that differentiates between countries by taking into account their public debt challenges, while adhering to a transparent and common EU framework consistent with the 3% of GDP and 60% of GDP reference values of the Treaty.
- 2Member States set out their medium-term fiscal path
Member States submit plans setting out their medium-term fiscal path, and priority reform and public investment commitments. They could propose a longer adjustment period, extending the fiscal adjustment path by up to 3 years when the path is underpinned by a set of reform and investment commitments that support debt sustainability and respond to common EU priorities and targets, as well as ensuring that the national fiscal-structural plan addresses all or a significant subset of relevant country-specific recommendations.
- 3Commission assessment
The Commission assesses the plans, providing a positive assessment if debt is placed on a downward path or stays at prudent levels, and the budget deficit remains credibly below the 3% of GDP reference value over the medium term. The Council would endorse the plans following a positive assessment from the Commission.
- 4Member States implement
Member States implement the plans. They would submit annual progress reports on the implementation of the plans to facilitate effective monitoring and ensure transparency.
Preventing and correcting harmful imbalances more effectively
The Macroeconomic Imbalance Procedure (MIP) aims to identify potential macroeconomic risks early on, prevent the emergence of harmful macroeconomic imbalances and correct the imbalances that already exist. The reform proposals for the MIP centre on an enhanced dialogue between the Commission and Member States to create a better common understanding of the challenges identified under the MIP and the policies needed to address them. This would, in turn, lead to a commitment from Member States to include the reforms and investments needed to prevent or correct imbalances in their national medium-term fiscal-structural plan.
The preventive role of the MIP would be strengthened in a macroeconomic environment characterised by new and evolving risks. The assessment of whether imbalances exist would be made more forward-looking with a view to detecting and addressing emerging imbalances early on. More weight would be placed on trend developments and on whether policies have been implemented to address imbalances, when assessing whether imbalances have been corrected.
A more focused and streamlined post-programme surveillance framework
Post-programme surveillance assesses the repayment capacity of Member States that have benefited from financial assistance programmes. As part of the new framework, and while keeping the legislative text unchanged, the Commission proposes to apply it differently, by setting clearer objectives, with the intensity of the framework linked to these objectives. In particular, post-programme surveillance would focus on assessing repayment capacity, monitoring the implementation of unfinished reforms, and assessing whether corrective measures are needed in the context of concerns for repayment capacity or continued market access.
The intensity of post-programme surveillance would evolve over time, along with the evolving risk assessment.