Since the creation of the Economic and Monetary Union (EMU) with the Maastricht Treaty in 1992, Member States have been required to regard their economic policies as a matter of common concern, and to coordinate them at EU level, while aiming to avoid deficits above 3% of GDP and to keep public debt below 60% of GDP. In the following years, the economic governance framework has evolved significantly, with important milestones including first the Stability and Growth Pact (SGP) in 1997, and later – in the wake of the crisis – the so-called "six-pack" and "two-pack" packages of legislative measures (in 2011 and 2013 respectively). The instigation by these packages of the European Semester of economic policy coordination also represented a crucial development.
While these rules and coordination mechanisms have had some success in correcting imbalances and reducing public debt, the framework has become highly complex. Furthermore its critics argue that it has been far too pro-cyclical, leading for instance to contractions of public investment during downturns where fiscal stimulus would have been beneficial. The democratic accountability and transparency of the processes at play are also in question.
The Communication on the Review of the economic governance framework, published on 5 February 2020, contains an assessment of how the rules (Stability and Growth Pact, 2-pack and 6-pack, mostly) have worked in the past years, and lists a number of questions aiming to kick-start a debate (including a public consultation) on the framework's possible evolution.
This opinion will allow the COR to play an active role in this review of the economic governance framework, which is essential. With European cities and regions responsible for a third of public expenditure and more than half of public investment, the economic governance framework and its rules have a direct impact on their ability to fund their policy objectives. Public investment by local and regional authorities, for instance, is still 25% lower than it was before the crisis in the EU as a whole, and much lower still in some Member States.
THE EUROPEAN COMMITTEE OF THE REGIONS
- applauds the fact that on 20 March 2020 the European Commission presented its proposal – for the first time in the history of the euro area – to make use of the general escape clause already provided for in the current Stability and Growth Pact (SGP) in order to strengthen emergency budgetary measures in response to the COVID-19 pandemic;
- believes that the European economic governance framework is partly responsible for the sharp drop in public investment that occurred following the euro area crisis because it does not sufficiently take into account the distinction between current expenditure and investment expenditure. Between 2009 and 2018, public investment as a whole fell in the EU by 20% as a share of GDP. Investment by local and regional authorities decreased by almost 25% and by 40% or more in some of the Member States worst affected by the crisis;
- considers that the establishment of a "golden rule of public investment" in the European economic governance framework could prove a useful tool to end the adverse effects of current budgetary rules by eventually excluding net public investment from deficit calculations in the SGP;
- believes that the democratic legitimacy of the European economic governance system is too weak and that this endangers not only economic governance itself but also the European project as a whole;
- draws the attention of the Commission and its co-legislators to the fact that involving local and regional authorities more in the European Semester by means of a code of conduct would also make decisions more representative and give the Semester – and thereby economic governance more broadly – greater legitimacy;
- firmly believes that, after the COVID-19 crisis, it will be more important than ever to rethink the European budgetary framework so as to avoid making public investment and public services the adjustment variable again in future budget consolidation programmes.