The European Union is undertaking a comprehensive review of its economic governance framework, to address longstanding criticisms, respond to the impact of COVID-19, and prepare for the challenges posed by the twin green and digital transitions.
This Discussion Paper represents the final instalment of an EPC Task Force series that examined the current approach and proposes 10 concrete policy recommendations to make EU economic governance stronger, greener and fairer:
- Establish a central investment capacity for green and digital investments (including associated social investments) or, alternatively, a golden rule modelled on the governance of the Recovery and Resilience Facility.
- Introduce a single net expenditure rule with a country-specific debt target based on nationally designed expenditure and debt plans to enhance political ownership.
- Shift to a multiannual supervision and assessment framework and introduce fixed medium-term budgetary plans, with a control account tracking deviations.
- Reform the sanctions regime to increase proportionality, perceived fairness and political enforceability.
- Differentiate country-specific supervision based on a clear risk threshold.
- Introduce ‘National Reform and Investment Plans’ modelled on the National Recovery and Resilience Plans, using a commitments-based approach to operationalise social, fiscal, macroeconomic and structural country-specific recommendations. The plans’ components with strong links to fiscal sustainability should govern the use of Stability and Growth Pact (SGP) flexibilities.
- Reform the Stability and Convergence Programmes (SCPs) to focus more on the investment composition of national fiscal plans and their link to broader policy objectives.
- Introduce an opinion on the individual and joint impact of the SCPs on imbalances into the Macroeconomic Imbalances Procedure to strengthen its link with the SGP.
- Introduce new processes into the European Semester to assess non-macroeconomic structural risks, such as climate and environmental risks.
- Build on the success of the temporary Support to mitigate Unemployment Risks in an Emergency (SURE) programme to create insurance-based mechanisms to support national fiscal policy during downturns.
This Discussion Paper draws on the insights of the EPC’s Task Force on Rethinking EU Economic Governance. The contents and views expressed are entirely the work of the authors and should not be interpreted as representing the views of any Task Force member. Policy Briefs on the Stability and Growth Pact, the European Semester and the Recovery and Resilience Facility, and social investment have already been published. Read the full paper here.