THE EUROPEAN SEMESTER

AND ECONOMIC RECOVERY

Kajus Hagelstam

Economic Governance Support Unit

(EGOV)

Economic and Social Committee,

European Semester Working Group,

7 September 2020

OUTLINE

The economic context

The (potential role) of the European

Semester

Some on-going work in the European

Parliament

ECONOMIC DEVELOPMENTS DURING COVID-19 (1)

• The economic effects of the pandemic are

unprecedented, (still) uncertain, and uneven (among

countries, regions, sectors and citizens), even if it is an

external symmetric shock

• Forecasting the economic effects, including what kind

of rebound, is challenging to say the least

• Need to be careful in reading average figures due to

these factors

ECONOMIC DEVELOPMENTS DURING COVID-19 (2)

ECONOMIC DEVELOPMENTS DURING COVID-19 (3)

Member

State

specific

forecast for

2020

ECONOMIC DEVELOPMENTS DURING COVID-19 (4)

• According to latest Eurostat information in the Q2 of 2020 (during the peak of the lock-down in many Member States):

• EU GDP shrank by 11.7% in seasonally adjusted terms compared with the previous quarter (EA GDP -12.1% during the same time)

• Compared to the Commission Summer forecast, this first estimation of Q2 are somewhat more positive (the Commission was estimating the GDP would decrease by 13.1% in the EU and 13.6% in the EA during Q2)

• The Member States with the highest drop in GDP: Spain (-18.5%), Hungary (14,5%), Portugal (13.9%), France (-13.8%), Italy (-12,4%), Romania (-12,3%). Belgium (-12,2%), Cyprus (-11,6%)

• The lowest drop in Finland (-3,2%) and Lithuania (-5,1%)

ECONOMIC DEVELOPMENTS DURING COVID-19 (5)

In 2020, the debt-to-GDP ratio is projected to increase significantly

in all EU Member States

According to the Spring 2020 Commission forecast, the debt-to-

GDP ratios of the EA and the EU are projected to rise substantially:

from 86.0% (euro area) and 79.4% (EU) in 2019 to 102.7% (euro

area) and 95,1% (EU) in 2020.

The two major contributing factors are (1) the recovery measures

increasing the budget deficit and (2) the drop in nominal GDP

EUROPEAN SEMESTER DESIGN AND COVID-19 (6)

Economic policy is primarily a national competence. Member

States took plenty of mitigating actions in response to COVID-

19 (see Commission’s overview table on national measures)

The Semester is established and designed as a EU-level

coordination and surveillance framework

As part of the EU recovery plan, the Recovery and Resilience

Facility is intended to give temporary and targeted financial

support for recovery

EUROPEAN SEMESTER DESIGN AND COVID-19 (7)

A EU surveillance procedure – (Semi-) Annual Semester Cycle

EU surveillance tools – Stability and Growth Pact, Macro-

economic Imbalance Procedure, and Integrated Guidelines

The policy recommendations based on these tools and

procedures may be designed de facto in a quite flexible way (i.e.

may be country and time specific)

EUROPEAN SEMESTER DESIGN AND COVID-19 (8)

As highlighted by the ECOFIN-Council

• “this year’s country-specific recommendations take into account the

specific context of the COVID-19 pandemic and the activation of the

general escape clause under the SGP ... [the country specific

recommendations] are lighter, more focused and less prescriptive

than in previous years. They reflect the following economic priorities:

invest in access, effectiveness and resilience of health care; preserve

employment and address the social impact of the crisis; focus on

research and development; ensure liquidity provisions and the stability of

the financial sector; preserve the single market and the circulation of

goods and services.”

EUROPEAN SEMESTER DESIGN AND COVID-19 (9)

Policy areas

covered in

the 2020

CSRs

PRE-PANDEMIC CSR IMPLEMENTATION RATE (10)

Full/Substantialprogress

Some progress

No/Limitedprogress

Implementation rate of 2019 Semester recommendations

1. Revising EU legislation (the review by the Commission is prolonged)?

2. Enhance scrutiny of the application of the Semester rules at the EU-level?

3. Stronger political ownership/internalisation at the national level of the EU Semester decisions/recommendations?

4. Possible link between the Semester recommendations and the EU-budget?

HOW CAN THE SEMESTER BE MADE MORE EFFECTIVE/LEGITIMATE? (11)

Recommendation from a recent European Semester report by the ECA:

Whilst CESAR is an internal database and not suitable for publication, and although a multi-annual overview is published by the Commission there is no consolidated database which is publicly available for retrieving easily the CSRs for all years and their respective implementation status in different years.

The Commission should:

(a) ensure that all relevant DGs document their assessments in CESAR;

(b) set up a publicly available multi-annual database of all CSRs and their implementation status;

(c) consider recommending specific measures in those instances where Member States fail to act upon guidance received in prior years (Article 2-a(3)(a) of Regulation 1466/97);

Timeframe: For parts (a)and (c) starting from 2021, for (b) starting from 2022

SOME ‘FOOD FOR TAUGHT’ (12)

ECON/BUDG Committees: Draft Regulation on establishing a Recovery

and Resilience Facility (RFF)

Rapporteurs: Eider Gardiazabal (S&D), Siegfried Muresan (EPP), Dragos Pîslaru

(Renew), see Draft Report.

ECON Committee: Economic policies of the euro area 2020

Rapporteur Schuster Joachim (S&D)

EMPL Committee: Employment and social policies of the euro area 2020

Rapporteur Klára Dobrev (S&D)

SOME ON-GOING WORK IN THE EUROPEAN PARLIAMENT (13)

EP RFF DRAFT REPORT (ART 3): THE SCOPE (6 MAIN POLICY AREAS) (14)

1) Green transition, taking into account the objectives of the Green Deal;

2) Digital transformation, taking into account the objectives of the Digital

Agenda;

3) Economic cohesion, productivity and competitiveness, taking into

account the objectives of the Industrial and SME Strategies;

4) Social cohesion, taking into account the objectives of the European Pillar of

Social Rights;

5) Institutional resilience, in view of increasing crisis-reaction capacity; and

6) Policies for the Next Generation, taking into account the objectives of the

European Skills Agenda, the Youth Guarantee and Child Guarantee

SOME OTHER ELEMENTS IN THE EP RFF DRAFT REPORT (15)

Support shall not substitute recurring national budgetary

expenditure and shall respect the principle of additionality of the

Union funding (based on EU added value)

The recovery and resilience plans shall be consistent with the

relevant country-specific challenges and priorities identified in the

context of the latest European Semester, in particular those relevant

for the policy areas set out in Article 3

Include an explanation of the consistency with the latest country-

specific recommendations addressed to the Member State concerned

or in other relevant documents officially adopted by the Commission in

the European Semester

A Member State wishing to receive support under

the Facility shall establish a multilevel dialogue,

in which local authorities, social partners, civil

society organisations, other relevant stakeholders

and the general public are able to actively engage

and discuss the preparation and the

implementation of the recovery and resilience plan.

SOME OTHER ELEMENTS IN THE EP RFF DRAFT REPORT (16)

THANK YOU!

EXTRA SLIDES

The European Semester for Economic Policy Coordination: Main steps and actors

September October November December January February March April May June July

European

Commission

Council

Eurogroup*

European Council

European

Parliament

Presentation of

AGS, AMR and

EA

recommendations

- Assessment of

NRPs and SCPs

- Draft CSRs

Adoption

of CSRs

Debate/

Resolution(s)

on the AGS

Member States

National

Parliaments

Economic Dialogues with other EU Institutions and Member States

Opinion

on DBPs

- In-depth review of imbalances

- Assessment of implementation

of CSRs

ECB

Legal base: TFEU

Regular (4 times /year)

Euro Group

Legal base: “6 and 2 pack”

Regular

(2 times/year)

+ Ad hoc

European Commission

Legal base:

“6 and 2 pack” + TFEU

Regular (2-4 times/year)

+ Ad hoc + confidential meetings

ECOFIN-Council

Legal base:

“6 and 2 pack” + TFEU

Regular (4 times/year)

Member States

Legal base:

“6 and 2 pack”

On invitation

SSM

Legal base: SSM

regulation + EP-ECB

agreement

Regular (2 times/year) +presentation

of annual report + ad hoc + confidential

meetings

ESAs

Legal base: EBA, ESMA,

EIOPA regulations

Regular

(once/year)

ESRB

Legal base: ESRB

regulation

At least Once/year +

ad hoc + confidential meetings (2

times/ a year)

Monetary Dialogues

Economic Dialogues

Public Hearings

European Commission

Legal base:

TEU+EP-COM agreement

Regular (2-4 times/year)

+ Ad hoc

Structured Dialogues

SRM

Legal base:

SRM regulation +

EP-SRB agreement

Regular

(2 times/year) + Presentation of annual report +

ad hoc + confidential meetings

External briefings +

prep meetings

Policy

Dep.-A

Internal + external

briefings + prep

meetings

EGOV

Internal briefings

EGOV

Internal and external briefings + prep meeting

EGOV

Scrutiny support on delegated

acts

ECON Secretariat

EMU SCRUTINY ACTIVITIES AT COMMITTEE LEVEL

Source: EGOV document.3