Bursting the Bubble

Economic coordination in the European Union

5 February 2015 | by

On the 29th of January, The Representation of the European Commission in the Netherlands organised an expert meeting on ‘Economic coordination in the European Union’. The meeting was organised in cooperation with the Clingendael Institute and &Maes. During this meeting, several experts discussed the successes and failures of the European Semester.

“The Eurozone needs strong economies that are able to handle economic shocks” said Mr. Jeroen Dijsselbloem, Dutch Minister of Finances and president of the Eurogroup, in his opening speech. The financial crisis of 2008 revealed weaknesses in the European supervision of banks. Euro-countries were not competitive and flexible enough to handle economic shocks. “A lot has been done to improve the European banking union” explains the Minister.  A common European supervision was established. The European Central Bank exercises direct or indirect supervision over all euro area banks. This enables us to apply the same standards to all banks and reflects the fact that many banks operate across European borders. A Single Supervisory Mechanism and a Single Resolution Mechanism for banks have been established. Many euro area countries worked hard on structural reforms to strengthen their economies. The budgetary rules have been tightened and the European Commission’s role in the surveillance process has been strengthened. However, “there is still a lot of work to do. The potential growth of the EU is too low and we need to increase investment in Europe” highlights Mr. Dijsselbloem. He points out three sectors where profit can be obtained: the energy market, the digital economy and the development of a capital markets union. Lastly, according to Mr. Dijssebloem, the European Commission should give more time to countries that are implementing intensive structural reforms. “If a euro country is implementing a rigorous reform to reach its long-term goal of obtaining a balanced budget, the Commission should reckon with that and give the country more time”.

 

For the past four years, the EU has issued country-specific recommendations for economic reform to its Member States under the European Semester. Servaas Deroose, Deputy Director-General for Economic and Financial Affairs of the European Commission, reflected briefly about the European Semester. Each European Semester, the European Commission analyses the reform policies of every Member State, provides recommendations, and monitors their implementation. According to Mr. Deroose the European Semester shows positive results. “It has contributed to the predictability and transparency of Member States. It showed the strengths and weaknesses of the Member States and made it clear which direction we would like to go”, says Servaas Deroose. However, an indicator of EU wide implementation of these recommendations shows a score of just over 40%. Mr. Deroose points out four weaknesses that lead to this low score:

 

  1. Ownership. On a national level, Member States do not feel that the country specific recommendations and the proposed structural reforms are appropriate to address the countries’ problems. Deroose argues that “countries need to recognize that what happens in their country influences other countries, the so-called spill-over effect”.
  2. Transparency. The European Commission has been criticized for not presenting enough analytical arguments and evidence for the country specific recommendations. Also, the dialogue between the Commission and the Member States needs to improve.
  3. Peer-pressure. There is a lack of peer-pressure between the EU countries. They are hesitant about giving each other constructive criticism about each other’s policies.
  4. Democratic legitimacy. It is questioned how democratic the policy measures are. The role of the national and European parliaments needs to be strengthened in this case.

 

Hans Vijlbrief, Treasurer-General at the Dutch Ministry of Finance, agrees that 40% of implementation is far too low. He gives three elements that are necessary to increase implementation of the country specific recommendations.  First of all, support for the reforms is needed; without support from society a backlash will occur.  In order to get this support, governments need to create a sense of urgency in society. So, urgency leads to support for reforms. Secondly, the Commission should better prioritize their recommendations. If a Member States receives seven recommendations they will have a tendency to say they worked on the first four or five but not on the other recommendations yet. Giving a Member State just three important recommendations will help them focus and implement them with added urgency. Lastly, the recommendations should be made more political. Furthermore, Mr. Vijlbrief argues that the European Commission should use its existing tools and rules to increase implementation. For example, the Commission should make use of the Macroeconomic Imbalances Procedure (MIP). The MIP has a corrective arm, which can eventually lead to sanctions for euro area Member States if they frequently fail to meet their obligations. “Up until now, the Commission never used the collective arm and is should start doing this” argues Mr. Vijlbrief.

One Comment

  1. Hi Farah,

    Sinds je stuk over Cuba mis ik de bite (=positie/mening/conclusie)
    De afsluiting met ‘een glimlach die ook de tanden laat zien’.

    🙂
    Serge

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