The European Semester

This pillar under the European semester framework aims at ensuring the surveillance and preventing the apparition of budgetary imbalances. In case of imbalances, corrective measures are taken.[7] The legislative acts and treaties under this pillar are the following:

• The Six Pack and especially Regulation (EU) n°1175/2011 of 16 November 2011 amending Council Regulation (EC) No 1466/97 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies.
• The Two Pack and especially Regulation (EU) n° 472/2013 of 21 May 2013 on the strengthening of economic and budgetary surveillance of Member States in the euro area experiencing or threatened with serious difficulties with respect to their financial stability.
• The Stability and Growth Pact formed by the conclusions of the Amsterdam European Council of 16 and 17 June 1997, Regulation n°1466/97, Regulation n°1467/97, amended by Regulation n°1177/2011 and Regulation n°1175/2011.
• The Treaty on the Functioning of the European Union (article 126) and its Protocol on the Excessive deficits (Protocol 12)
• The Fiscal Compact that states that the budgetary and the rules concerning public indebtedness should be transposed in a national law preferably of a constitutional nature.[9]

Article 126 of the Treaty on the functioning of the European Union prohibits excessive deficits. Besides, the protocol n°12 states 3% of the GDP as maximum.[10] The multilateral surveillance is a part since 2011 of the European Semester. Therefore, each Member State has to give to the Commission and the Council in its stability programme all the information concerning its deficit ratio (article 3 of Regulation n°1466/97 of the Stability and Growth Pact).

The Medium-term objective (MTO) is the deficit taken in a broader period of time and that is not subjected to economic cycles effects and budgetary short-term measures.[7] The MTO is an important parameter taken into account by the Commission during its assessment of the budgetary situation of a Member State. The MTO must lead to an equilibrium of the deficits of each Member State and is calculated as the difference between public spending and the potential GDP growth. Indeed, Regulation (EU) n°1175/2011 amending one of the two regulation constituting the Stability and Growth Pact states that the MTO shall be between -0,5% of the GDP and the equilibrium or exceeding it. All the Member states that haven't reach a certain reference rate of public spending (deficit) based on GDP growth in the medium term (unique to each Member State based on projections) have to follow a trajectory of adjustment defined by the Commission and the Council.[11]

The maximum of 60% of indebtedness relative to the GDP of each Member State was first inserted in the Protocol on the excessive deficit procedure of the Maastricht Treaty (article 1) in order to prepare the convergence of the States towards the adoption of the Euro.[12] Moreover, the 60% criterion was taken over in the Protocol on the procedure regarding excessive deficits attached to the Lisbon Treaty (article 1).[10] For the multilateral surveillance, each Member State has to give to the Commission and the Council in its stability programme all the information concerning its indebtedness ratio (article 3 of Regulation n°1466/97 of the Stability and Growth Pact). Furthermore, Regulation n°472/2013[13] in its article 6 states that if a Member State requests financial assistance, an evaluation shall be made on the sustainability of its government debt.

In case of an excessive deficit, a deviation from the MTO or from the adjustment path, the Commission can activate the corrective phase of the SGP and recommend during the European semester the opening of an excessive deficit procedure. The council automatically adopts the recommendation against a Eurozone Member State unless a qualified majority of the States oppose to it (reversed qualified majority) following the procedure stated in the Fiscal compact. For the Non-Euro Members, the council has to agree on the Commission's recommendation with a qualified majority of the voting.[7]

A lot of countries such as Belgium or Italy were subjected to that procedure. [nb 1] Only 2 countries have never seen an excessive deficit procedure launched against them: Estonia and Sweden.[14]

All the Member States have to build their budgetary framework according precise rules detailed in Directive 2011/85 of the Six Pack. Those rules are notably related to accounting, statistics, realism in budgetary information, etc. In case of suspicion of data manipulation or wrong information, the Commission can launch an investigation in a Member State that can lead to sanctions.[15] For example, Spain got fiscal sanctions under that procedure because of the Autonomous Community of Valencia that had misrepresented its statistics.[1]

This pillar aims at monitoring and preventing the emergence of macroeconomic imbalances.[7] In its annual Alert Mechanism Report, the Commission gives an assessment for each country on the basis of its economic and financial situation using different indicators. There are two types of indicators:

• Example of internal indicators: public and private indebtedness, unemployment level, etc.
• Example of external indicators: exchange rates, the export data of each State, etc.

The countries that are facing (or that may face) macroeconomic imbalances are subjected to an in-depth analysis that can lead to the opening of an excessive macroeconomic imbalance procedure. If a Member State has seen an excessive macroeconomic imbalance procedure launched against it, the Council will recommend measures that the States shall take and the Commission will be in charge of closely monitoring their implementation. If there is no improvement, the Commission can publish a recommendation that publicly recognizes the non-compliance with the corrective measures. This will be automatically adopted by the Council unless a qualified majority of Member States oppose to it.[16] The Commission may also recommend to the Council the imposition of sanctions, the conditions of which are detailed in Article 4 of Regulation n°1174/2011.

In 2018, 12 countries were subjected to an in-depth review from the Commission because they faced macroeconomic imbalances: Bulgaria, Croatia, Cyprus, France, Germany, Ireland, Italy, the Netherlands, Portugal, Slovenia, Spain and Sweden.[17]

Socio-economic coordination relates to the coordination of national and European socio-economic policies with the objective of promoting growth and jobs. The 2011 European Semester was dominated by the pursuit of fiscal consolidation and macroeconomic austerity with limited concern for social cohesion and inclusion goals.[18]

However, as the sovereign debt crisis within the Eurozone morphed into a broader economic and employment crisis, leading to a rapid erosion of public support for the EU, a significant re-balancing between social, economic, and employment objectives has been visible in the policy orientation of successive European Semesters.[18] In the 2017 European Commission’s reflection paper on deepening the Economic and Monetary Union, the European Commission suggested that the Semester could be further reinforced by fostering cooperation and dialogue among member states at different levels to ensure and encourage stronger domestic implementation of reforms.[19]

It's the most important period of the semester if we take into account the five documents that are produced: the Annual Growth Survey; the Alert Mechanism Report; the Joint Employment Report; the Commission’s recommendation for the euro area; and the Commission’s opinions on draft budgetary plans.[2]

The European semester begins with the submission from the Eurozone Member States of their draft budgetary plans. This also marks the start of a dialogue between the Member States and the Commission. Before the budget of each Member State is debated in its national parliament, the Commission needs to assess it according to numerous elements such as the macroeconomic and budgetary situation of the country or the council recommendations made during former semesters.[20]

The Commission releases three documents which explain and demonstrate the overall situation of the employment, the social priorities and the economic stability inside the European Union. It also delivers overall recommendations for the Eurozone and a specific opinion on the draft budgetary plans of the Eurozone countries.

• The Annual Growth Survey (AGS):

The AGS is a communication from the Commission to the other European institutions .[nb 2][21] It is a comprehensive document of the Autumn Package which analyses the most recent trends in terms of economic and social policies and establishes the general economic and social priorities for the EU. It also provides the Member States with policy guidance for the upcoming year. The Commission gives in the document an overview of the state of the European economy and looks at what has been accomplished in the past years in terms of growth, jobs and investment. It also gives the key challenge that the economy is facing which can lead to macroeconomic, financial and budgetary imbalances as well as defining long-term economic and social objectives for Europe.[22] The annual growth survey is based on the progress towards the Europe 2020 targets, the macroeconomic report analyzing the EU economic situation and the joint employment report.[23] The AGS priorities have evolved overtime: From 2011 to 2014, the AGS priorities focused on fiscal consolidation, tackling unemployment and the social consequences of the crisis as well as modernizing public administration.[24][25][26] From 2015-2018, the focus shifted to boosting investment, pursuing structural reforms, and responsible fiscal policies.[27][28][29][30] Furthermore, in 2019, the priorities stressed that policy efforts at national level should focus on delivering high-quality investment and reforms which increase productivity growth, inclusiveness and institutional capacity, while continuing to ensure macro-financial stability and sound public finances.[31] Finally, in the 2020 Annual Sustainable Growth Strategy, there was a tremendous shift of priorities which stressed the transition towards a sustainable and inclusive economy, technological progress, sustainable solutions and demographic changes. Indeed, the 2020 Strategy has four dimensions; environmental sustainability, productivity gains, fairness and macroeconomic stability.[32]

• The Alert Mechanism Report (AMR):

It is a report addressed from the Commission to other European institutions: the Council, the European Central Bank, the European Parliament and to the European Economic and social committee. This report marks the beginning of the annual cycle of the macroeconomic imbalance procedure (MIP) in identifying and addressing the risks of macroeconomic imbalances in accordance with articles 3 and 4 of Regulation (EU) No 1176/2011 on the prevention and correction of macroeconomic imbalances. Several indicators are used in order to determine the countries that need an in-depth review (IDR) because of the macroeconomic risk they face or may face.[33]

• The Joint Employment Report (JER):

This report is mandated by article 140 of the Treaty on the functioning of the EU. This document outlines the important social and employment achievements or developments in the EU. It also gives actions that were taken by Member States in line with the Guidelines for the Employment Policies of each country. Furthermore, the States are monitored by a scoreboard of indicators set up in the European Pillar of Social Rights (Council decision 2018/1215 of 16 July 2018).[34]

• The Recommendation on the economic policy of the euro area:

It's a draft recommendation made by the Commission in view of the Council recommendation. The document prescribes measures that the Eurozone Member States have to implement in order to tackle critical issues for the functioning of the Single currency area.[35]

• The Opinion on draft budgetary plans of Eurozone members:

The opinion assesses the conformity of the draft budgetary plan of each Member state in line with the fiscal and budgetary rules (first pillar). It also gives an overview of the implementation of each State regarding the Country-specific recommendation (CSRs) addressed during the former European semester.[20]

The Council adopts the recommendations on the economic policy of the euro area on the basis of the Commission's recommendation. The Council also adopts conclusions on the Alert Mechanism Report and on the Annual Growth Survey.[4]

During these 2 months, the national parliament of each Member State adopts its budget.[2]

At the end of the month, the Commission publishes its Country reports. The reports underline for each State the economic situation and forecasts, the progress regarding the implementation of the Country-specific recommendations addressed by the Council in the previous years, the reform priorities that the country needs to endorse as well as a summary of the possible in-depth investigation launched under the AMR.[36] Country reports also cover all areas of macroeconomic or social relevance with the aim of monitoring the progress of Member States. Countries can find in their report a detailed analysis of the challenges their economy face, as well as policy suggestions for tackling these challenges. The reports are also intended to provide the basis for a dialogue between the Member States and the European Commission under the form of bilateral meetings which follow their release. The country reports are important for States in view of the preparation of their National Reform Programmes as well as their Stability or Convergence Programmes.[37]

The European Council discusses the economic situation of the countries of the EU. It endorses the AGS and lists the broad economic priorities that need to be adopted by the member states.[38] These guidelines allow Member States to develop their stability programs (for euro area members) or convergence programs (for non-euro area members states) and their national reform programmes.[2]

Each member state sends two documents to the Commission and the Council:

• The National Reform Programme:

It gives a detailed project of economic reforms that each country will implement. It also contains all the reforms the country has taken (and will take) to address the country recommendations of the previous years or simply the reforms that the country has taken regarding its own situation. This document contains also specific policies that the country will implement in order to strengthen employment and growth. Furthermore, the programme gives an overview of the strategic investments and the use of the structural funds made by the state. The situation of the country regarding the objectives of the current framework strategy (currently Europe 2020) are also reported.[39] The measures adopted in the National Reform Programmes should be precise and represent immediate and comprehensive budgetary consequences in relation to national objectives and targets.[40]

• The Stability Programme (for Eurozone countries) / the Convergence Programme (for non-eurozone countries):

Each country sets in the document the orientation and the objectives of its budgetary policies for 3 years. The document should demonstrate how the country is in the path in reaching its Medium-Term Objective (MTO) and how it will prevent and correct its macroeconomic/budgetary imbalances. The stability programmes must contain macroeconomic forecasts that are provided by an independent authority and that will be reviewed and subjected to a comparison with the Commission forecasts. Any differences will have to be explained and justified. The programme contains more precisely budgetary and fiscal assumptions for 3 years such as the planned deficit, the level of indebtedness and some macroeconomic scenarios.[41]

The commission publishes and sends to the Council its proposal of recommendation in view of the adoption of the Country-specific recommendations (CSRs). The documents contains policy guidelines for each country. It states the macroeconomic, fiscal and budgetary reforms that need to be taken or the way of addressing challenges. These recommendations need to be followed and implemented by the Member States.[41] The CSRs are drafted after a thorough assessment of the progress made from the previous year's CSRs, and a detailed analysis of the National Reform Programmes and Stability or Convergence Programmes.

The initial preparation and drafting of the CSRs is done by Country Teams which are led by the Secretariat-General of the European Commission with contributions from desk officers and several responsible from relevant Directorate-Generals of the European Commission. It has to follow a deliberative and evidence-based process.[18] At the national level, the European Commission engages European Semester Officers (ESOs) who are economic policy experts with the role of bringing the Semester closer to national stakeholders by overseeing the implementation of the CSRs, feeding the Country Teams with CSR analysis, national insights and sentiments, and sometimes explaining complex details of EU economic governance to the national stakeholders.[42] When the draft has been formulated by the Country Teams, it is then submitted to the Director-Generals of Secretariat-General of the European Commission, Directorate-General for Economic and Financial Affairs, Directorate-General for Employment, Social Affairs and Inclusion, Directorate-General for Taxation and Customs Union for discussion and finally to the college of commissioners for approval.[18]

In June, the Council of the EU in its different formations such as Employment, Social Policy, Health and Consumer Affairs Council (EPSCO) and advisory bodies such as the Economic Policy Committee (EPC), the Employment Committee (EMCO), and the Social Protection Committee (SPC) discusses and debates the draft of the country-specific recommendations, which are in turn discussed and endorsed by the European Council.

Finally, in July, the Council formally adopts the country-specific recommendations, and the member states are supposed to take these recommendations into account in their national decision-making and in the next year’s national budget.[2]