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Economic policy coordination and competition agreements: Commission wants to further intensify economic and monetary union

Whilst the social crisis in southern Europe escalates, Europe suffers from mass unemployment and the economy is in recession, EU Commission displays its usual zeal with regard to the economic and monetary union: on the one hand, future plans for big national economic reforms shall be coordinated in advance by the Commission and other Member States concerned. On the other hand, states that implement “structural reforms” to achieve more “competitiveness” shall be able to conclude a contract with the Commission, which in turn will be rewarded with financial aid for implementing these very reforms. Both proposals are key milestones of the concept presented by the Commission in November 2012 in respect of a deep and genuine economic and monetary union. With the two Communications of the Commission, the political debate on the modality of future economic and monetary integration will go into the next round: in terms of democracy, further weakening of parliaments in favour of the national and European executive in economic policy issues appears to be looming. This entails the danger that both instruments will result in further juridification and thereby safeguarding of neoliberal policies.

All power to the executive: ex-ante coordination of important economic reforms

On Wednesday, 20 March, the Commission adopted two further coordination instruments towards deepening the economic and monetary union (see appendix). The first communication concerns important economic reforms of the Member States. Pre-discussions and ex-ante coordination of major economic policy reforms shall allow the Commission and other Member States to assess potential spill over effects of national measures and to make their position clear before the reform is finally decided at national level. The idea of “ex-ante coordination” is not completely new. It is already indicated in Article 11 of the Treaty on Stability, Coordination and Governance of the Economic and Monetary Union – vulgo “Fiscal Compact”.

The Commission proposes that the reforms to be coordinated should focus on “competitiveness, employment, the functioning of product and services markets, network industries, tax systems, financial stability and fiscal sustainability”. These reforms shall be integrated in the tight corset of the “European Semester”, i.e. brought together with country-specific recommendations of the Commission, preliminary checks of national draft budgets and budget discipline. In particular Member States of the eurozone shall be affected by this coordination.

What does such a coordination process actually look like? A Member State shall present the key economic policy reform plans in the national reform programme – also an important part of the already existing “European Semester”. Thereupon the Commission reviews the plan in particular in respect whether and how the planned reform will affect competitiveness and adaptability (e.g. of labour markets). The Commission will then make recommendations, in particular as to how this reform will impact the eurozone and other states. Based on this assessment – so the idea – the reform plans shall then be discussed and if necessary modified by the Economics and Finance Ministers resp. the Euro Group. Even though the final decision on the reform remains with the national state, the opinion of the Commission and the discussion by ministers will play a vital part in the assessment process of the “European Semester”.

Discipline and “Solidarity”: contracts for Convergence and Competitiveness

The second Communication refers to a contractual instrument, which may be concluded between Commission and national states. The basic idea of this “Convergence und Competitiveness Instrument (CCI)“: Member States (in difficulty), which commit to the Commission to carry out “necessary” reforms for growth and competitiveness, receive funds from the Commission to implement these reforms faster and to cushion their negative costs or effects. This should – so the cynical idea – strengthen the social dimension of the economic and monetary union. Thereby, the Commission keeps an eye on those structural reforms, which refer to country-specific recommendations (“European Semester”) and contribute to the functioning of the economic and monetary union – i.e. which address competitiveness and “improve” the functioning of labour and product markets. The funds, which the Commission holds out as an incentive upon conclusion of contract, could be used for modernising job qualification systems, increased effectiveness of labour market policies or programmes for life-long learning. This “instrument” is used to combine the implementation of neoliberal “structural reforms” with financial incentives – a bit like the carrot and stick approach. The Commission does also not flinch from calling this a solidarity mechanism. It is also significant and ideologically telling that the Commission quasi assumes that the reforms initiated and supported by it will cause social collateral damage. Hence, this is the same logic of a “shock strategy”, which also characterises the adjustment programmes of the “Troika”: mass unemployment and humanitarian problems are consciously accepted to implement one’s own agenda (wage cuts, cancellation of collective agreements and social benefit cuts) – subsequently cushioned by underfunded welfare programmes.

Which Member States are affected? All are able to conclude such contracts – with the exception of those that are already subject to a “Troika” programme. Moreover, those countries that want to join the eurozone in future, may also take part. However, voluntariness leaves much to be desired, if the Member State shows excessive macroeconomic imbalances. Contracts between a Member State and the Commission are concluded as follows: a state represents a plan, outlining, which reforms it intends to implement to fulfil the recommendations of the Commission (“European Semester”). This plan - including concrete deadlines - must subsequently be approved by the Economics and Finance Ministers and shall then result in a “contractual agreement”. The Commission examines whether the reforms are target-aimed and then negotiates with the Member State resp. presents it with a draft contract. The Council can accept or amend this proposal. One thing is clear: no agreement - no money.

If a Member State infringes a contractually agreed obligation, the Commission will stop or claim back its payments. However, where shall the money come from, in particular in view of the fact that the heads of state and government will cut the EU budget for the coming years? The Commission thinks that the initial costs for these contracts will be minor and that they would only increase in the medium term. As to financing, it proposes a new financial instrument as part of EU budgets, which, however, shall be entered outside the multiannual financial framework. Hence, the money for this “carrot” does not yet exist. The Commission plans to involve the Member States, independent of their respective economic power - just to fill this pot of money.

Background of the two Communications

These two Communications by the Commission specify the path towards a deep and genuine economic and monetary union. Its objective is to strengthen economic policy coordination and integration in the eurozone. Both steps are not coming as a surprise; they have already been outlined in the already mentioned Commission concept (see Appendix) from November 2012 and follow seamlessly to the so far implemented measures on fiscal surveillance. Whilst the current fiscal policy instruments – the know “Two-Pack” was recently adopted with only minor changes – aim at budget discipline and financial stability, the present proposals are going towards surveillance of economic policies: macroeconomic imbalances and the development of “competitiveness” in the Member States shall be increasingly scrutinised. The target is to coordinate economic policies under the supervision of the Commission. Whilst the usefulness of the idea of a European Bank Union – also a key component of a future deeper economic and monetary union – is widely undisputed, both Communications outlined this week, will be more controversial: The economic reforms, contractually determined between national government and EU Commission under the buzzword of “competitiveness”, no longer envisage parliamentary co-determination, thereby making economic policy even more pure government policy than before. From a democratic point of view, this undermines democratic legitimacy even further – given the fact, that the last determinations of deeper economic and monetary union have already de facto removed the budget right of national parliaments. Moreover, in view of the current balances of power, there is, from a social policy perspective, also the danger that contracts on more “competitiveness” just result in “more-of-the-same” of current economic policies: the Commission tends to understand the buzzword of structural reform as a flexibilisation of labour markets, interference in wage-setting mechanisms and undermining social rights. Subsequently, the Commission will not “only” make recommendations on “necessary reforms”, but would use the aforementioned contractual obligations to exercise even more power over economic policy framework conditions. Apart from that, the funds announced in return for such reforms will be used to once again increase economic policy pressure on Member States to conclude such agreements. Hence, it will be no coincidence that these restrictive instruments shall be pushed through before the current period of this Commission expires.


What comes next? At present, the Communications, adopted by the Commission on Wednesday, just mark the wishful thinking of the Commission and shall be debated in the European institutional structure over the coming weeks. Hence, no concrete legislative elaborations resp. proposals do yet exist. The Commission is now expecting input of Member States, parliaments and other interest groups. It will be in particular up to the heads of state and government (June summit) and the EU Parliament how the coming debates on these proposals will develop resp. whether they will find majorities at all.

Further information:

Convergence and Competitiveness Instrument (CCI)

Ex ante coordination of plans for major economic policy reforms

A blueprint for a deep and genuine economic and monetary union (November 2012)
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