Analysis

The benefits of bringing the Western Balkans into the European Semester

Integrating the Western Balkan countries into the European Union’s European Semester process is both feasible and desirable.

Publishing date
11 December 2023
Authors
Zsolt Darvas
EU enlargement photo

To help structure its discussions on economic, social and structural issues with European Union candidate countries, the European Commission put in place in 2014 an instrument centred around so-called National Economic Reform Programmes (ERPs), which those countries submit to the Commission. Currently, Albania, Bosnia and Herzegovina, Kosovo, Montenegro, North Macedonia, Serbia and Türkiye participate in this process, which resembles to some extent the European Union’s European Semester economic surveillance process.

The process also includes an annual summit – the Economic and Financial Dialogue  involving representatives from the EU, the Western Balkan countries and Türkiye and the European Commission. Central bank representatives – the European Central Bank and the central banks of the Western Balkans and Türkiye – also participate. The ultimate aim is to integrate the Western Balkan countries and Türkiye into the European Semester (Council of the EU, 2023).

In this context it is worth asking if this process could be merged into the European Semester, thus including the Western Balkan countries ahead of their EU entry.

The European Semester

The annual European Semester, in place since 2011, is the EU’s the main economic governance mechanism 1 See https://commission.europa.eu/business-economy-euro/economic-and-fiscal-…. . Each November, the European Commission sets out general social and economic priorities for the EU and the euro area, and issues policy guidance to EU countries. Following discussions with various EU institutions, EU countries then submit two main plans: a National Reform Programme (NRP), and either a Stability Programme (euro countries) or a Convergence Programme (non-euro countries) – abbreviated to SCP.

The Commission evaluates these programmes and in-depth reviews are prepared for each country at risk of macroeconomic imbalances. Based on Commission recommendations, the Council of the EU each July adopts country-specific recommendations (CSRs) for each EU country. The European Semester incorporates fiscal and macroeconomic surveillance, post-programme monitoring of countries that received financial assistance and monitoring of the implementation of post-pandemic recovery plans (National Recovery and Resilience Plans, NRRPs). Euro-area countries also submit to the Commission their draft budgetary plans for the subsequent year by October, which are checked by the Commission for conformity with EU fiscal rules.

The track record of implementation by EU countries of European Semester CSRs was poor before the pandemic. On a 0-100 scale, with zero meaning no implementation and 100 meaning full implementation, Darvas and Welslau (2023) found that the average score fell from a modest 41 in 2012 to 20 in 2019. Possible explanations for this include the inherent difficulty in influencing the sovereign economic and social policy decisions of EU countries (Darvas and Leandro, 2015), lack of coherence of CSRs with the economic preferences of national parliaments (Maatsch, 2017) and less market pressure after the euro crisis of the early 2010s 2 Derose and Griesse (2014), Darvas and Leandro (2015), Brincogne and Turrini (2017) and Efstathiou and Wolff (2023) concluded that countries under market pressure implemented a greater share of CSRs. .

The deterioration of implementation could also be explained by the increasing difficulty of recommendations: countries first implement the easier ones, which are then not re-recommended, while the difficult are not fully implemented and are then recommended repeatedly in subsequent years (Derose and Griesse, 2014). Econometric estimates indicate that market pressure on sovereigns, a higher sovereign default probability and weaker economic fundamentals increase the likelihood of implementation, but stronger EU surveillance does not (Efstathiou and Wolff, 2023). 

Implementation scores have improved recently. The first possible reason for this is that CSRs issued during the pandemic recommended what countries were doing anyway: addressing the emergencies caused by the pandemic (Darvas and Welslau, 2023). Second, one requirement of the NRRPs was to address all or a significant subset of challenges identified in the relevant CSRs. Our preliminary calculations suggest that the reform implementation index was around 40 for the 2022 CSRs. This still implies only partial implementation, but is better than in the late 2010s.

Despite the poor implementation record of CSRs, the analyses prepared for the European Semester and the consequent discussions have been nevertheless useful for raising awareness about the EU’s fiscal, macroeconomic and social challenges.

The Economic Reform Programme process for the Western Balkans and Türkiye

The Commission’s 2014 enlargement strategy (European Commission, 2014) includes a process under which the six Western Balkan countries and Türkiye prepare Economic Reform Programmes (ERP), including a medium-term macroeconomic and fiscal policy outlook and a structural reform plan to foster competitiveness, growth and inclusiveness. Like the European Semester, the ERP cycle is annual. It starts in May with the adoption of conclusions from the Economic and Financial Dialogue between the EU, Western Balkans and Türkiye 3 From 2024, the dialogue will be extended to include Ukraine, Moldova and Georgia (Council of the EU, 2023). , which include policy guidance that is similar to the European Semester CSRs. The European Commission issues policy guidance to help in preparation of the ERPs 4 The OECD also supports the preparation of Economic Reform Programmes in various ways. See https://www.oecd.org/south-east-europe/programme/economic-reform-progra…. . After various discussions, ERPs are submitted by January of the subsequent year and are assessed by the European Commission in April 5 ERPs, Commission assessments and other related documents are available at: https://neighbourhood-enlargement.ec.europa.eu/enlargement-policy/polic…. The Commission also includes in its annual enlargement package extensive country-specific analyses of various economic and non-economic issues that the candidate countries can use to develop their ERPs. For links to the most recent detailed studies for all candidate countries, see European Commission press release of 8 November 2023, ‘Commission adopts 2023 Enlargement package, recommends to open negotiations with Ukraine and Moldova, to grant candidate status to Georgia and to open accession negotiations with BiH, once the necessary degree of compliance is achieved’, https://ec.europa.eu/commission/presscorner/detail/EN/ip_23_5633. .

The Commission’s assessments of policy guidance implementation in the ERP process use the same methodology as its assessments of EU countries’ CSR implementation. Achievements are classified into five categories: full implementation, substantial implementation, partial implementation, limited implementation and no implementation. The 2022 and 2023 assessments, which assessed the implementation of policy guidance issued in the preceding year, also included overall numerical scores (Table 1). For six countries, the overall assessment of the implementation of the 2021 recommendations was ‘partial implementation’; for Bosnia and Herzegovina is was ‘limited implementation’. For 2022 there was ‘limited implementation’ of policy guidance by Bosnia and Herzegovina, Montenegro and Türkiye, and ‘partial implementation’ by the other four countries.

While limited and partial implementation of policy guidance does not sound encouraging, the overall scores reported in Table 1 are in fact higher than the EU countries’ European Semester CSR implementation scores during the 2010s, and are broadly similar to the implementation of 2022 CSRs.

New growth plan for the Western Balkans

In November 2023, the European Commission proposed a new growth plan for the Western Balkans 6 See European Commission news article of 8 November 2023, ‘Commission presents a new Growth Plan for the Western Balkans including €6 billion in grants and loans to accelerate economic convergence with the EU’, https://neighbourhood-enlargement.ec.europa.eu/news/commission-presents…. , with four pillars: 1) enhancing economic integration with the EU’s single market, 2) boosting economic integration within the Western Balkans through the common regional market, 3) accelerating fundamental reforms, and 4) establishing the Reform and Growth Facility for the Western Balkans (RGFWB) with €2 billion in grants and €4 billion in loans from 2024 to 2027.

To benefit from financial assistance, Western Balkan countries must submit to the Commission reform plans “building on the structural reforms part of the latest Economic Reform Programme and the related Joint Policy Guidance agreed at the Economic and Financial Dialogue in May 2023, its national growth strategy where applicable, the revised enlargement methodology, the most recent Enlargement Package and the Economic and Investment Plan for the Western Balkans” (Article 11 of the draft regulation; European Commission 2023).

Thus, ERPs and the outcomes of the Economic and Financial Dialogue will be major inputs for accessing RGFWB funds, while the plans submitted to the RGFWB will feed back to subsequent ERPs. This setup bears some similarities to the Recovery and Resilience Facility (the main part of the EU post-pandemic recovery strategy) and the European Semester process.

A comparison of the European Semester and the ERP processes

Similarities

  • Both processes require participating countries to prepare plans for the macro-fiscal outlook as well as structural reforms.

  • While the types of documents that help the preparation of national plans differ, both processes include documents evaluating common challenges and detailed country-specific analyses.

  • The lengths of plans (NRP and SCP combined for the European Semester, while there is a single ERP plan) are roughly the same. 

  • The Commission evaluates the plans using the same methodology (it also monitors the social components of ERPs with reference to the European Pillar of Social Rights). 

  • Peer review by other participating countries can be part of both processes. 

  • Other stakeholders are also involved for both 7 Ristovski et al (2023) evaluated external consultations for the preparation of ERPs and made recommendations on how to increase the involvement of national parliaments and non-state institutions. , though it is more widespread for the European Semester.

  • Both processes result in country-specific recommendations, and the implementation of these recommendations is evaluated by the Commission. 

Thus, in terms of substance, the two processes are very similar.

Differences

  • The European Semester has a base in EU law. For the ERP process, the participating countries “are invited to enhance economic policy and its governance through the preparation of annual National Economic Reform Programmes” (European Commission, 2014) and thus their participation is voluntary. 

  • Lack of implementation of European Semester CSRs related to EU fiscal and macroeconomic imbalance rules could in principle result in fines, but no fines are involved in the ERP process.

  • More stakeholders are involved in European Semester discussions than in ERP discussions.

  • The duration of ERP is three years, while the duration of NRP/SCP is four years.

  • While both processes follow annual cycles, the timing is different.

Early participation of the Western Balkans in the European Semester?

The similarities between the processes leads to the question of whether they should be merged, even before Western Balkan countries become EU members. 

Whether this would improve the implementation of CSRs is unclear. As we showed, the implementation of policy guidance in the ERP process was either better or similar to implementation of CSRs in the European Semester. 

However, several other factors suggest that including the Western Balkans in the European Semester could bring mutual benefits.

EU countries and EU institutions would obtain better understandings of the development of Western Balkan countries and their readiness for eventual EU entry. Likewise, experts and policymakers from Western Balkan countries could familiarise themselves with EU economic, social and structural policies and coordination processes. Better knowledge of EU social, economic and structural policies and best practices could also help in designing domestic policy reforms in the Western Balkans.

An important side effect of more frequent interaction in various expert groups and policy circles could be increased trust between current and prospective EU members. 

Several EU policies, including on climate, energy, transport and immigration, have implications for the Western Balkans. Such policies of common interest could be better coordinated if Western Balkan countries were involved in the European Semester.

The symbolic meaning would also be important: it could further express the EU’s determination to integrate Western Balkan countries. This could boost public support in the Western Balkans for EU integration, and make those governments more determined to advance with the necessary and often difficult reforms.

The risks and costs for the EU could be relatively low. Commission experts are already knowledgeable about the region and prepare lengthy reports about each Western Balkan country annually, so the additional administrative burden for the Commission would likely be minimal. Western Balkan countries have prepared ERPs since 2015, which mimic NRPs and SCPs. Thus, experts in these countries have already developed skills to prepare such plans, while governments have institutional processes in place to prepare, implement and monitor such plans. Consequently, the risk of low-quality plans for the European Semester seems low.

The legal basis for the inclusion of Western Balkan countries in the European Semester could come from an EU regulation, which has legal force for EU countries, so it could only make the participation of Western Balkan countries possible. Western Balkan countries could participate on a voluntary basis, similarly to their current participation in the ERP process. Given that these countries regularly submit their ERPs on time and participate in related discussions, they would likely also do so as part of the European Semester framework.

In sum, the inclusion of Western Balkan countries in the European Semester ahead of their EU entry could bring benefits to both the EU and the Western Balkans, while the risks and costs for the EU seem to be low. The ongoing review of the EU economic governance framework 8 In April 2023, the Commission proposed an economic governance update; see European Commission press release of 26 April 2023, ‘Commission proposes new economic governance rules fit for the future’, https://ec.europa.eu/commission/presscorner/detail/en/ip_23_2393. The proposal includes replacement of the EU law (Regulation (EC) No 1466/97) that established the European Semester.  offers an ideal opportunity to include the Westen Balkans.

References

Brincogne, J.-C. and A. Turrini (2017) ‘The EU Macroeconomic Imbalance Procedure: Some impact and no sanctions’, VoxEU, 22 June, available at https://cepr.org/voxeu/columns/eu-macroeconomic-imbalance-procedure-some-impact-and-no-sanctions

Council of the EU (2023) ‘Joint Conclusions of the Economic and Financial Dialogue between the EU and the Western Balkans and Türkiye’, 9478/23, available at https://data.consilium.europa.eu/doc/document/ST-9478-2023-INIT/en/pdf

Darvas, Z. and A. Leandro (2015) ‘Naughty students or the wrong school: why is the European Semester proving ineffective?’ Bruegel Blog, 18 November, available at https://www.bruegel.org/blog-post/naughty-students-or-wrong-school-why-european-semester-proving-ineffective 

Darvas, Z. and L. Welslau (2023) First lessons from the Recovery and Resilience Facility for the EU economic governance framework, study prepared for the European Parliament's Committee on Economic and Monetary Affairs, available at https://www.bruegel.org/report/first-lessons-recovery-and-resilience-facility-eu-economic-governance-framework 

Deroose, S. and J. Griesse (2014) ‘Implementing economic reforms – are EU Member States responding to European Semester recommendations?’, ECFIN Economic Brief, Issue 37, European Commission, available at https://ec.europa.eu/economy_finance/publications/economic_briefs/2014/eb37_en.htm# 

Efstathiou, K. and G. Wolff (2023) ‘What drives implementation of the European Union’s policy recommendations to its member countries?’ Journal of Economic Policy Reform 26(2): 177-198, available at https://doi.org/10.1080/17487870.2022.2056461 

European Commission (2014) ‘Enlargement Strategy and Main Challenges 2014-15’, COM(2014) 700 final, available at https://eur-lex.europa.eu/legal-content/en/ALL/?uri=CELEX:52014DC0700 

European Commission (2023) ‘Proposal for a regulation on establishing the Reform and Growth Facility for the Western Balkans’, COM(2023) 692 final, available at https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=comnat%3ACOM_2023_0692_FIN

Maatsch, A. (2017) ‘Effectiveness of the European Semester: Explaining domestic consent and contestation’, Parliamentary Affairs 70(4): 691-709, available at https://doi.org/10.1093/pa/gsx021

Ristovski, S., A. Salianji, A. Loxha Stublla, H. Ćutahija, R. Miljenović and M. Sošić (2023) Institutional set-up and external consultations for the preparation of the Economic Reform Programmes in the Western Balkans, Research Report, European Policy Institute – Skopje, available at https://epi.org.mk/post/25212?lang=en

This stream of work was funded by the Open Society Foundations – Western Balkans. 

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About the authors

  • Zsolt Darvas

    Zsolt Darvas is a Senior Fellow at Bruegel and part-time Senior Research Fellow at the Corvinus University of Budapest. He joined Bruegel in 2008 as a Visiting Fellow, and became a Research Fellow in 2009 and a Senior Fellow in 2013.

    From 2005 to 2008, he was the Research Advisor of the Argenta Financial Research Group in Budapest. Before that, he worked at the research unit of the Central Bank of Hungary (1994-2005) where he served as Deputy Head.

    Zsolt holds a Ph.D. in Economics from Corvinus University of Budapest where he teaches courses in Econometrics but also at other institutions since 1994. His research interests include macroeconomics, international economics, central banking and time series analysis.

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