Economic governance

The European Union (EU) has introduced a set of rules that aim to detect, prevent and correct problematic economic trends, such as excessive government deficits or public-debt levels, which can stunt growth and put economies at risk.

The EU’s economic governance framework revolves around the European semester and its economic policy coordination system. The European semester allows EU countries to discuss their economic and budget plans and monitor progress at specific times throughout the year. It seeks to ensure that:

• there are clear rules;
• national policies are better coordinated year-round;
• there is regular monitoring;
• the emergence of potentially harmful macroeconomic imbalances can be identified early on; and
• sanctions are enforced when countries fail to comply with the rules.

Following the economic and financial crisis of 2008-2010, the EU beefed up its economic governance rules to reinforce its Stability and Growth Pact with:

• the six-pack laws (a system to monitor broader economic policies so as to detect problems like property bubbles or falling competitiveness at an early stage — macroeconomic imbalance procedure);
• the two-pack laws (euro-area countries — other than those with macroeconomic adjustment programmes — must submit their draft budget plans by 15 October each year and the European Commission issues an opinion by the end of November);
• the Treaty on Stability, Coordination and Governance (fiscal compact).

The Commission has also started to integrate the United Nations sustainable development goals (SDGs) into the European semester as part of its strategy to put sustainable development at the heart of economic policy.

In early 2020, the Commission presented a review of the effectiveness of EU economic governance and launched a debate on its future in view of the EU’s evolving priorities. The review examines how effective the economic surveillance framework has been in achieving three key objectives:

• ensuring sustainable government finances and economic growth, as well as avoiding macroeconomic imbalances;
• enabling closer coordination of economic policies; and
• promoting convergence in EU countries’ economic performance.

SEE ALSO

• Corporate social responsibility
• Economic policy
• Economic and monetary union
• European Commission
• European semester
• European Union
• Excessive deficit procedure
• Macroeconomic imbalance procedure
• Monetary policy
• Stability and Growth Pact
• Economic governance rules introduced after the financial and economic crisis — a review (summary)
• Economic surveillance of euro-area countries in budgetary difficulties (summary)
• Fiscal surveillance and excessive deficit correction in the euro area (summary)
• Requirements for euro-area countries’ budgets (summary)
• Stability and Growth Pact enforcement (summary)
• Surveillance of budgetary policies (summary)
• Treaty on Stability, Coordination and Governance in the economic and monetary union (also known as the fiscal compact) (summary)
• EU economic governance: monitoring, prevention, correction (European Commission).