Blog Post

The importance of the European Semester in its second cycle

The European Semester is a framework for enhanced economic policy coordination in Europe. It builds on two innovations. First, the European Commission and the European Council provide ex ante policy guidance at the beginning of the year suggesting a number of policy priorities Member States should focus on. In turn, EU Member States submit to […]

By: Date: May 29, 2012 Topic: Macroeconomic policy

The European Semester is a framework for enhanced economic policy coordination in Europe. It builds on two innovations. First, the European Commission and the European Council provide ex ante policy guidance at the beginning of the year suggesting a number of policy priorities Member States should focus on. In turn, EU Member States submit to the EU their Stability or Convergence Programmes and their National Reform Programmes already in April every year, after having incorporated elements from EU ante guidance. Second, the two documents are indeed jointly submitted so as to force Member States to take account of the budgetary implications of their reforms.

The idea of a European Semester was launched back in 2010 in the midst of the debt crisis and became operational at the beginning of 2011. We are now in the second Semester cycle; the Member States have submitted their national documents; and the European Commission is about to deliver its country-specific recommendations, which will be then adopted by the Council and ultimately endorsed by the European Council at the end of June.  But, the circumstances underlying this second cycle have changed from the first cycle in ways that make this economic policy coordination exercise much more relevant than it was in 2011.

First, the new economic governance framework is now in force following approval of the six-pack at the end of 2011. The Semester’s ex ante policy guidance and successive EU recommendations on both fiscal and structural issues are now delivered in a context in which excessive deficits are more severely sanctioned and other macroeconomic imbalances must be addressed by means of structural reform under penalty of sanctions.

Second, the second Semester cycle coincides with the very final stage of the Excessive Deficit Procedure (EDP). All euro zone countries but Estonia, Finland and Luxembourg are formally under the EDP and have to reduce their public deficits below 3% of GDP by either 2012 (Cyprus and Belgium) or 2013 (all other cases). Yet, the slow-growth environment makes some countries more vulnerable than others and a handful of them risks breaching the reference value. This year is thus also a test of the Semester’s capacity to contribute to effective surveillance and macroeconomic adjustment and to deliver a proper integrated approach that allows analysing national economic systems in a holistic fashion accounting for both fiscal and structural vulnerabilities.

Third, this year’s Semester is strongly backed by the existence of a new process, the Macroeconomic Imbalance Procedure (MIP) and its corrective arm known as Excessive Imbalance Procedure (EIP), which is indeed one important part of the recently approved six-pack. Countries of the euro zone that display severe imbalances in their current accounts, export market shares, unit labour costs, private debt and credit flows, house prices and unemployment will be subject to intense monitoring, pressures for adjustment and ultimately sanctions. We found that non-binding EU recommendations on structural reform delivered in the framework of the first Semester cycle failed to bite, especially in the area of product and service market liberalization*. As the EU recommendations that will be delivered this year rely on more coercive methods than last year, Member States are going to be subject to strong pressures for change. How they will deal with them is likely to depend on national electoral cycles, growth conditions (as reform is typically easier in good times), and different degrees of commitment to EU policy coordination, a first clear test of the extent to which Member States have internalised the need for radical change following the debt crisis.

* Upcoming EP’s study “The first European Semester cycle: assessing its effectiveness and legitimacy” by Mark Hallerberg, Benedicta Marzinotto, and Guntram Wolff.

* Benedicta Marzinotto also co-authored the working paper How effective and legitimate is the European semester? Increasing role of the European parliament published on 22nd September 2011


Republishing and referencing

Bruegel considers itself a public good and takes no institutional standpoint. Anyone is free to republish and/or quote this post without prior consent. Please provide a full reference, clearly stating Bruegel and the relevant author as the source, and include a prominent hyperlink to the original post.

Read article
 

External Publication

European Parliament

Tailoring prudential policy to bank size: the application of proportionality in the US and euro area

In-depth analysis prepared for the European Parliament's Committee on Economic and Monetary Affairs (ECON).

By: Alexander Lehmann and Nicolas Véron Topic: Banking and capital markets, European Parliament, Macroeconomic policy Date: October 14, 2021
Read article More by this author
 

External Publication

Global Economic Resilience: Building Forward Better

A roadmap for systemic economic reform calling for step-change in global economic governance to increase resilience and build forward better from economic shocks, prepared for the G7 Advisory Panel on Economic Resilience.

By: Thomas Wieser Topic: Global economy and trade, Macroeconomic policy Date: October 14, 2021
Read about event More on this topic
 

Upcoming Event

Nov
4
14:00

European monetary policy: lessons from the past two decades

This event will feature the presentation of “Monetary Policy in Times of Crisis – A Tale of Two Decades of the European Central Bank."

Speakers: Grégory Claeys and Wolfgang Lemke Topic: Macroeconomic policy Location: Bruegel, Rue de la Charité 33, 1210 Brussels
Read article More on this topic More by this author
 

Opinion

Letter: Declining investment may explain why rates are low

Perhaps an analysis of the causes of the declining investment rate would bring us closer to explaining why real interest rates are so low.

By: Marek Dabrowski Topic: Macroeconomic policy Date: October 1, 2021
Read article More by this author
 

Podcast

Podcast

A green fiscal pact

How can the European Union increase green public investment while consolidating budget deficits?

By: The Sound of Economics Topic: European governance, Macroeconomic policy Date: September 29, 2021
Read article More on this topic More by this author
 

Blog Post

Monetary arithmetic and inflation risk

Between 2007 and 2020, the balance sheets of the European Central Bank, the Bank of Japan, and the Fed have all increased about sevenfold. But inflation stayed low throughout the 2010s. This was possible due to decreasing money velocity and the money multiplier. However, a continuation of asset purchasing programs by central banks involves the risk of higher inflation and fiscal dominance.

By: Marek Dabrowski Topic: Macroeconomic policy Date: September 28, 2021
Read article More on this topic More by this author
 

Opinion

The pandemic’s uncertain impact on productivity

The pandemic has certainly permanently affected our way of working. Whether this is for the better remains to be seen.

By: Maria Demertzis Topic: Macroeconomic policy Date: September 28, 2021
Read about event More on this topic
 

Past Event

Past Event

How to strike the right balance between the three pillars of the pension system?

In this event panelists will discuss the future of European pension schemes.

Speakers: Elsa Fornero, Svend E. Hougaard Jensen and Suvi-Anne Siimes Topic: Macroeconomic policy Date: September 23, 2021
Read article More on this topic More by this author
 

Blog Post

Germany’s foreign economic policy: four essential steps

Germany and the EU need to develop a strong and proactive agenda to manage foreign economic relations, which are essential for German and European prosperity.

By: Guntram B. Wolff Topic: Macroeconomic policy Date: September 23, 2021
Read article Download PDF More by this author
 

Policy Contribution

A new integrated-value assessment method for corporate investment

To contribute more to the green transition, companies should start to make investment decisions based on integrated-value assessment, weighing up the environmental and social impacts alongside the financial returns.

By: Dirk Schoenmaker Topic: Green economy, Macroeconomic policy Date: September 23, 2021
Read article More on this topic More by this author
 

Podcast

Podcast

Unboxing the State of the Union 2021

In this Sound of Economics Live episode, Bruegel experts look at the State of the Union address delivered by Ursula von der Leyen, President of the European Commission.

By: The Sound of Economics Topic: Macroeconomic policy Date: September 15, 2021
Read about event More on this topic
 

Past Event

Past Event

The Sound of Economics Live: Unboxing the State of the Union 2021

In this Sound of Economics Live episode, we look at the State of the Union address delivered by Ursula von der Leyen, President of the European Commission.

Speakers: Grégory Claeys, Maria Demertzis, Alicia García-Herrero and Giuseppe Porcaro Topic: Macroeconomic policy Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: September 15, 2021
Load more posts