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During the Euro crisis, the lack of economic coordination at European level became the focus of the debate. If prior to the introduction of the Euro the individual states had still been able to control their competitiveness individually by currency adjustments, this is now no longer possible. Countries like Germany that adopt an aggressive export strategy to keep wages at a low level, now put the rest of the Eurozone massively under pressure. So far, there are no instruments to counteract this trend at EU level and the plans of the European Commission concerning enhanced economic governance, which were presented this week, will not bring much change. It is to be feared that instead of active coordination only a kind of “neoliberal watchdog function” of the Commission will be strengthened.

Macroeconomic supervision

One of the most controversial issues during the course of the Euro crisis has been the drifting apart of the competitiveness of the individual Member States. In order to counteract this development, the Commission intends to set up a scoreboard that on the basis of economic and financial indicators will show the developments of national competitiveness. If it becomes evident that one country is responsible for a significantly increased imbalance, a correcting mechanism will come into force, which consists of detailed country recommendations by the Commission and a reporting duty of the affected state to the ECOFIN Council and the Euro Group. In this context, it will be a central question, which indicators will be used as a measure. Expressly mentioned are among others the balance of payment and the wage level. Whether states such as Germany, which pursue an aggressive export strategy will be actually covered by the correcting mechanism remains to be seen. It is to be feared that only countries with above-average wage agreements will be reprimanded.

The European Semester

Over the past months, the Commission has repeatedly announced that its economic coordination focus lies on an intensified implementation of the Stability and Growth Pact. In order to make this easier, it is planned to implement a so-called European Semester. It is the aim of this European Semester to coordinate the time of the budget and economic policy of the national states. The semester starts in January with an annual growth assessment, which analyses the coming economic challenges. In April, the states will present their until now separate stability and reform programmes at the same time and the European Commission will give country-specific recommendations at the beginning of July. The budgets will be finalized in the second half of the year. In order to drive forward the implementation of the Stability and Growth Pact, one considers additionally aggravated sanction possibilities.

The Commission document recommended a number of other measures, for example a restriction of the national budgetary freedom by a compulsory implementation of the requirements of the Stability and Growth Pact in national budgetary rights. According to the schedule, the ECOFIN Council should confirm the supervision cycle of the European Semester and a revised Code of Conduct of Stability and Growth Pact already in its meeting on the 13th of July. Further legislative proposals are planned for the end of September.

Further Information:

Press release of the Commission

Commission Paper on Economic Coordination

Memo of the Commission: A toolbox for stronger economic governance in Europe

Diagram: Schedule of the European Semester

Specification of the implementation of the Stability and Growth Pact