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SOU, Alm.del - 2011-12 - Bilag 178: Invitation til Interparlamentarisk møde om det europæiske semester SOU, Alm.del - 2011-12 - Bilag 178: Invitation til Interparlamentarisk møde om det europæiske semester

DIRECTORATE GENERAL FOR INTERNAL POLICIES

POLICY DEPARTMENT A: ECONOMIC AND SCIENTIFIC POLICY

ECONOMIC AND MONETARY AFFAIRS

HOW EFFECTIVE AND LEGITIMATE IS

THE EUROPEAN SEMESTER?

INCREASING THE ROLE OF THE

EUROPEAN PARLIAMENT

BRIEFING PAPER

Abstract

The European Semester is a new institutional process that provides Member

States with

ex-ante

guidance on fiscal and structural objectives. The

Semester’s goals are ambitious and it is still uncertain how it will fit into the

new EU economic governance framework. We find that Member States are

only slowly internalising the new procedure. Furthermore, the Semester has so

far lacked legitimacy due to the minor role assigned to the European

Parliament, the marginal involvement of National Parliaments and the lack of

transparency of the process at some stages. Finally, there remains room to

clarify the implications from a unified legal text. In fact, diluting the legal

separation of recommendations on National Reform Programmes and Council

opinions on Stability and Convergence Programmes may compromise effective

surveillance and governance. The European Parliament has an important role

to play. It needs hold the Commission and the Council accountable. This and

the overall objective of enhancing the new procedure’s effectiveness and

legitimacy can be done by means of a regular Economic Dialogue on the

Semester.

IP/A/ECON/NT/2010-24

PE 464.443

AUGUST 2011

SOU, Alm.del - 2011-12 - Bilag 178: Invitation til Interparlamentarisk møde om det europæiske semester

This document was requested by the European Parliament's Committee on Economic and

Monetary Affairs

AUTHORS

Mr Mark HALLERBERG, Professor of Public Management and Political Economy, Hertie

School of Governance, Berlin

Ms Benedicta MARZINOTTO, Research Fellow, Bruegel, Brussels, corresponding author

Mr Guntram B. WOLFF, Deputy Director, Bruegel, Brussels

with research assistance of Lucia GRANELLI and Silvia MERLER

RESPONSIBLE ADMINISTRATOR

Rudolf MAIER

Policy Department Economic and Scientific Policy

European Parliament

B-1047 Brussels

E-mail:

[email protected]

LINGUISTIC VERSIONS

Original: EN

Executive summary: DE, FR

ABOUT THE EDITOR

To contact the Policy Department or to subscribe to its newsletter please write to:

[email protected]

Manuscript completed in August 2011.

Brussels, © European Parliament, 2011.

This document is available on the Internet at:

http://www.europarl.europa.eu/activities/committees/studies.do?language=EN

DISCLAIMER

The opinions expressed in this document are the sole responsibility of the authors and do

not necessarily represent the official position of the European Parliament.

Reproduction and translation for non-commercial purposes are authorised, provided the

source is acknowledged and the publisher is given prior notice and sent a copy.

SOU, Alm.del - 2011-12 - Bilag 178: Invitation til Interparlamentarisk møde om det europæiske semester

How Effective and Legitimate Is the European Semester? Increasing the Role of the European Parliament

_________________________________________________________________________________________

CONTENTS

LIST OF ABBREVIATIONS

LIST OF TABLES

LIST OF FIGURES

EXECUTIVE SUMMARY

INTRODUCTION

1.1. The Semester’s Innovations

1.2. The Legal Architecture

THE CHALLENGES: EFFECTIVENESS AND LEGITIMACY

2.1. Effectiveness

2.1.1. The national level

2.1.2. The European level

2.2. Legitimacy

2.2.1. Input Legitimacy

2.2.2. Output Legitimacy

MEMBER STATE EXAMPLES

EFFECTIVENESS AT THE NATIONAL LEVEL: STABILITY/

CONVERGENCE PROGRAMMES AND NATIONAL REFORM

PROGRAMMES

EFFECTIVENESS AT THE EUROPEAN LEVEL: CHALLENGES OF

INTEGRATED ANALYSIS AND POLICY FORMULATION

5.1. The choice of optimal fiscal and structural policy

5.2. Prioritisation across policy areas

5.3. Political and economic trade-offs

5.4. Prioritisation across countries

5.5. Interaction with the new economic governance framework

5.6. The challenges of an integrated legal text

5.7. The Council acting on the basis of a Commission recommendation 22

ONE ASPECT OF INPUT LEGITIMACY: THE ROLE OF NATIONAL

PARLIAMENTS IN THE FIRST CYCLE

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Policy Department A: Economic and Scientific Policy

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THE ROLE OF THE EUROPEAN PARLIAMENT

POLICY RECOMMENDATIONS

REFERENCES

ANNEX I : ANNUAL GROWTH SURVEY

ANNEX II: SURVEY COUNTRIES - OVERVIEW

ANNEX III: QUESTIONAIRE

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How Effective and Legitimate Is the European Semester? Increasing the Role of the European Parliament

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LIST OF ABBREVIATIONS

AGS

Annual Growth Survey

BEPG

Broad Economic Policy Guideline

Directorate-General of the European Commission

ECB

European Central Bank

EDP

Excessive Deficit Procedure

Employment Guidelines

EIP

Excessive Imbalance Procedure

EMU

European Economic and Monetary Union

European Parliament

European Semester

ESRB

European Systemic Risk Board

European Union

GDP

Gross Domestic Product

Integrated Guideline

IMF

International Monetary Fund

MoF

Ministry of Finance

MTBF

Medium-term Budgetary Framework

MTFA

Medium-term Financial Assistance

MTFF

Medium-term Financial Framework

MTO

Medium-term Budgetary Objective

NRP

National Reform Programme

Proportional Representation

SCP

Stability or Convergence Programme

SGP

Stability and Growth Pact

SME

Small and Medium Enterprises

TFEU

Treaty on the Functioning of the European Union

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Policy Department A: Economic and Scientific Policy

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LIST OF TABLES

Table 1: Submission’s schedule ............................................................................ 17

LIST OF FIGURES

Figure 1. The European Semester: timetable and governance ..................................... 9

Figure 2. The European Semester: Treaty base....................................................... 10

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How Effective and Legitimate Is the European Semester? Increasing the Role of the European Parliament

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EXECUTIVE SUMMARY

The European Semester is a new six-month cycle in economic policy coordination in the

European Union that starts in January and finishes in June/July. It is based on two

procedural innovations. The first is a shift in the timing of the budgetary process.

National Governments are asked to submit their Stability or Convergence Programmes

before they are discussed by National Parliaments and translated into national legislation.

The aim is to strengthen economic policy coordination across countries by providing ex-

ante guidance. The second institutional innovation is the alignment of the timing of fiscal

and structural reform plans. EU Member States are now asked to submit Stability or

Convergence Programmes at the same time as their National Reform Programmes,

implying that Member States should pay more attention to complementarities and spill-

over effects across policy areas.

The Semester’s objectives are ambitious and its interaction with the new emerging

economic governance framework is complicated and, to some extent, unpredictable. We

analyse here the main challenges ahead in differentiating between effectiveness, at

national and European level, and legitimacy challenges.

On the first issue, effectiveness, early evidence is that countries have adapted differently

to the new procedures depending on if they are ‘old’ or ‘new’ Member States; if their

economic interests lie exclusively with the EU or not; and if they have strong or weak

national fiscal frameworks. Second, it remains to be seen if an integrated legal text

containing recommendations to correct the course of fiscal policy and intervene in

individual markets through structural measures will end up strengthening or weakening

the overall economic-governance framework. The European Parliament should in this

context become a forum in which information is exchanged. Its role as guardian in the

relationship between the European Commission and the Council should be made more

visible and effective. Clearer involvement of the European Parliament would also reduce

legitimacy concerns.

To achieve these objectives, in this paper, we envisage a wider economic dialogue with

the European Semester playing a central role. We envisage an Economic Dialogue with

the Commission and the President of the European Council that largely mimics the

European Central Bank’s Monetary Dialogue. A strong role for the European Parliament

will increase the effectiveness of EU economic governance, even if we suggest that its

involvement is limited to specific stages along the Semester cycle. On the other hand, we

find mixed results as regards the possibility of an increased or new collaboration between

National Parliaments and the European Parliament. The present briefing paper is a first

investigation into the possible role of the European Parliament in the new emerging

economic governance framework. A full study surveying also evidence on the actual

experience of the first Semester cycle’s follow-up will be delivered in 2012.

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Policy Department A: Economic and Scientific Policy

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INTRODUCTION

1.1.

The Semester’s Innovations

The sovereign debt crises that some euro area countries have experienced during the last

fifteen months indicate that the current design of European economic governance is not

able to prevent crises from occurring and spreading. Along with the realisation that fiscal

rules were not biting enough, it has also been recognised that the public sector was not

solely responsible for countries’ indebtedness but that, especially in euro area Member

States like Portugal and Spain, the private sector also accumulated substantial debt in

order to finance both consumption and investment.

Thus, an important lesson to draw

from the crisis is a deeper understanding of the high level of interconnectedness between

euro area countries, some of which are borrowers and other lenders, and between policy

areas, with strong feedback effects operating between the public, the private and the

financial sectors.

Recent events generated momentum in favour of a reform of European economic

governance. The European Commission submitted the main lines of the new EU

governance framework on 12 May 2010

, with formal proposals in its comprehensive

package of 29 September 2010 organised into six legislative proposals, four of which are

to be approved by the Council and the European Parliament (EP) through the regular

legislative process.

Current proposals include measures to strengthen fiscal surveillance

by the Commission, enforcement through semi-automatic sanctions, and a completely

new regulation on surveillance and sanctioning of non-fiscal macroeconomic imbalances.

The emerging governance structure is anchored in the so-called European Semester.

First proposed in the Commission’s Communication of 12 May 2010 and then approved

by the Council on 7 September 2010, the European Semester is a new institutional

process with the ultimate aim of strengthening coordination between countries and of

macroeconomic and structural issues. It consists of a cycle of economic policy

coordination that lasts for about six months and is repeated every year. The cycle starts

in each January with the presentation of the Commission’s Annual Growth Survey (AGS).

The AGS sets a number of priorities for the EU as a whole and identifies objectives that

would serve the fulfilment of those priorities. The Spring European Council then endorses

the AGS after discussion in the Council and the European Parliament. The Spring

European Council explicitly invites EU Member States to take account of the AGS in the

drafting of their budgetary and structural reform plans, which they need to submit to the

EU already in the Spring. The Commission is set to deliver country-specific

recommendations on the basis of these documents, with the Council expected to adopt

them no later than July. Figure 1 summarises the timetable and the main elements of the

Semester’s governance structure. This process is based on two procedural innovations,

each supporting a specific objective. The first is a shift in the timing of the budgetary

process.

Altomonte and Marzinotto (2010).

Gerlach, Schulz, and Wolff (2010).

Commission (2010a), Reinforcing Economic Policy Coordination, COM(2010) 250, 12 May.

The six legislative proposals are as follows: 1) Proposal for a Council Regulation amending Regulation (EC) n.

1467/97 on speeding up and clarifying the implementation of the excessive deficit procedure, 2) Proposal for a

Regulation amending Regulation (EC) n. 1466/97 on the strengthening of the surveillance of budgetary

positions and the surveillance and coordination of economic policies, 3) Proposal for a Regulation of the

European Parliament and of the Council on the prevention and correction of macroeconomic imbalances, 4)

Proposal for a Council Directive on requirements for budgetary frameworks of the Member States, 5) Proposal

for a Regulation on the effective enforcement of budgetary surveillance in the euro-area, 6) Proposal for a

Regulation on enforcement measures to correct excessive macroeconomic imbalances in the euro-area.

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Since the late 1990s Member States have been required to submit Stability or

Convergence Programmes (SCPs) under Regulation 1466/97 as part of the Stability

Pact’s preventive arm. These documents typically contain multi-annual budgetary

projections and details of national fiscal consolidation strategies. Compared with practice

prior to 2011, the difference now is one of timing, as National Governments must submit

them before they are discussed in National Parliaments and translated into national

legislation. The aim is to strengthen economic policy coordination between countries in

the form of

ex-ante

guidance.

The second institutional innovation is the alignment of the timing of fiscal and structural

reform plans. EU Member States are now asked to submit their SCPs alongside their

National Reform Programmes (NRPs). Introduced in their current form in March 2005

under the revamped Lisbon Strategy, NRPs are used by Governments to inform the EU of

their multiannual commitments to structural interventions in the economy from pension

to product, labour and capital markets reforms. The Semester’s prescription is that they

should be submitted together with budgetary projections, implying that Member States

need to take greater account of complementarities and spill-over effects between policy

areas. Furthermore, the early announcement of EU priorities and objectives through the

AGS means that

ex-ante

guidance is exercised not only for countries’ fiscal policies but

also for their growth strategies, albeit with some differences in the strength and coercive

power of EU recommendations.

The European Council of 25 March 2011 introduced an additional tool to improve cross-

country coordination of growth policies: it invited EU Member States to include in their

upcoming reform plans reference to Euro-Plus Pact commitments. Initially suggested by

France and Germany in early 2011 and then adopted by the Spring European Council,

the Pact lists a number of priorities that largely mimic the content of the January AGS

(i.e. competitiveness, employment, fiscal sustainability and financial stability).

Figure 1. The European Semester: timetable and governance

Alert

mechanism

In-depth studies

Recommendation

January

February

March

April

May

June

July

European

Commission

Annual Growth

Survey

Policy guidance

including possible

recommendations

Finalisation

& adoption

of guidance

Council of

Ministers

Debate &

orientations

European

Parliament

European

Council

Annual

economic &

social summit

Adoption of National Reform

Programmes (NRPs) &

Stability and Convergence

Programmes (SCPs)

Endorsement

of guidance

Member

States

Source:

Based on DG ECFIN

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Policy Department A: Economic and Scientific Policy

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1.2.

The Legal Architecture

The legal architecture of the Semester is not free of ambiguities which – if not properly

addressed – may give rise to institutional conflicts. The European Semester is legally

enshrined in Articles 121 and 148 of the Treaty on the Functioning of the European Union

(TFEU). The former commits EU Member States to economic policy coordination and

dissuades them from implementing policies that could endanger the proper functioning of

Economic and Monetary Union. The latter brings employment to the centre of EU

economic-policy and requires Member States to submit regular reports on their

employment situation. The Semester is thus underpinned by a Treaty-based system of

surveillance and

ex-post

monitoring that recognises specific roles for the European

Commission, the Council and the European Parliament. The fact that it is Treaty-based is,

however, not sufficient to solve some legal ambiguities.

In practice, the European Semester builds on the Integrated Guidelines for Growth and

Jobs (IGs) adopted in March 2005, which combined the Broad Economic Policy Guidelines

(BEPGs) and the Employment Guidelines (EGs) into a single document for the first time,

each one in fact regulated by Articles 121 and 148 TFEU respectively. In turn, just like

the IGs (BEPGs + EGs), part of the Semester’s overarching framework relies on non-

binding EU recommendations; this is indeed the case for measures that concern

structural reform for example in the areas of welfare and labour markets. Nevertheless,

the indications coming from the EU become binding and may lead eventually to sanctions

if a country is made subject of the Stability Pact’s Excessive Deficit Procedure (EDP) and

the new Excessive Imbalance Procedure (EIP). Under the current framework, failure to

meet the Stability and Growth Pact’s deficit target in the coming years will indeed

activate the EDP and, with it, a legislative process in which adjustment by the

problematic Member States in question is mandatory.

Figure 2. The European Semester: Treaty base

Article 121:

Broad Economic Policy Guidelines (BEPGs)

“(…) The Council shall inform the European Parliament of its

recommendation.” (paragraph 2)

non-binding

“(…) The President of the Council may be invited to appear before the

competent Committee of the European Parliament if the Council has

made its recommendations public.” (paragraph 5)

Article 148:

Employment Guidelines (EGs)

“(…) the Council, (…) after consulting the European Parliament, (…)

shall each year draw up guidelines which the Member States shall take

into account in their employment policies. (…)” (paragraph 2)

Integrated

Guidelines

for

Growth

and

Jobs (IGs)

Europe 2020

European Semester

Annual Growth Survey

National Reform Programmes &

Stability and Convergence Programmes

binding

Excessive

Deficit

Procedure

Excessive

Imbalance

Procedure

Source:

Authors

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How Effective and Legitimate Is the European Semester? Increasing the Role of the European Parliament

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At the same time, failure to address structural problems that cause persistent

macroeconomic imbalances will lead to the activation of the new EIP, which is expected

to rely on similar coercive methods to the EDP. The legal ambiguities derive thus from

the fact that the European Semester brings together two procedures (the Stability Pact’s

preventive arm and the IGs) that generate two different types of legislative acts. The

Commission recommendation on SCPs provides the basis for a binding Council opinion,

whereas its recommendation on NRPs informs a non-binding Council recommendation.

On 7 June 2011, however, the Commission submitted country-specific recommendations

in an integrated legal text merging recommendations for the two procedures in a single

document. It remains an open question whether overall surveillance in the EU will be

enhanced or not under this new procedure, a topic we will address below.

The rest of the contribution is structured as follows. Section 2 lists the challenges ahead.

Section 3 describes the case selection and the rationale behind it. Section 4 provides

preliminary evidence on the adaptation of a sample of EU countries to the first Semester

cycle. Section 5 discusses the problems associated with the integrated approach and the

position of the Commission in the legislative process. Section 6 looks at the involvement

of National Parliaments based on original survey-based evidence. Section 7 addresses

explicitly the question of the role of the European Parliament. Section 8 offers policy

recommendations relating to the involvement of the European Parliament, National

Parliaments, and the European Commission.

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Policy Department A: Economic and Scientific Policy

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THE CHALLENGES: EFFECTIVENESS AND LEGITIMACY

2.1.

Effectiveness

The Semester has ambitious objectives and how it will fit into the new emerging

economic governance framework is a complicated and, to some extent, ambiguous issue.

We analyse here the main challenges ahead, differentiating between effectiveness, at the

national and European levels, and legitimacy challenges.

A first question is if the European Semester is and will be effective. Typically, policy

effectiveness is defined as how well a particular instrument achieves a given policy

objective.

In a multi-level framework such as the EU, multiple actors employ similar or

dissimilar policy instruments to achieve the same overall policy objective. When it comes

to economic policy coordination, it is certainly necessary to distinguish between

developments at national and EU levels. We thus look at effectiveness from two

perspectives: national and European.

2.1.1.

The national level

A first question is to what extent national Governments have adapted to the new process

and rules, thereby creating the necessary conditions for enhanced coordination between

countries and policy areas. It is too early to draw definitive conclusions, but the

preliminary evidence shows that Member States have, in this first round, adapted

differently to the new process depending on their historical relationships with the EU,

their contribution to the launch of economic policy coordination initiatives (e.g. the Euro-

Plus Pact), the strength of their commitment to macroeconomic adjustment and their

national fiscal frameworks.

2.1.2.

The European level

The second question is if the new framework is able to deliver on surveillance, a result

that would depend on the Semester’s fit within the emerging economic governance

structure. The role of the Commission in the Semester is not assessed enough, and this

point is important — the effectiveness of the Semester is likely to depend not only on

Member States’ capacities to adapt to it, but also on the Commission’s ability to deliver

the required early and integrated surveillance. More precisely, we will explore here the

role of the Commission versus the Council, and the relative advantages of the integrated

approach in the preparation of country-specific recommendations.

2.2.

Legitimacy

Another key issue is the extent to which the process is legitimate. Political science

literature has devoted much attention to the role of legitimacy in policy-making

processes. Scharpf (1999) considers the issue of legitimacy in the EU, using the

classification developed in Scharpf (1970), which focuses on both input-oriented and

output-oriented legitimacy. Input-oriented legitimacy is the extent to which there is

Government by the people, that is, the extent to which the people participate directly in

decisions.

On the use of the concept of policy effectiveness in public policy analysis, see for example Heritier (2003).

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Output-oriented legitimacy, in turn, is the extent to which a decision is for the people,

that is, the extent to which a given decision is in the best general welfare interest of the

population. Scharpf (1999) discussed the role of the European Parliament, stating that

the institution by itself could not provide input-oriented legitimacy because of the lack of

a 'thick' common identity among EU Member State populations. National Government

involvement in decisions therefore remains important because national Governments

provide most of the input-oriented legitimacy. When it comes to output-oriented

legitimacy, there are several ways to increase it, according to Scharpf. Electoral

accountability that allows populations to replace Governments that act contrary to their

interests is one. A closely related feature is checks and balances on the actions of

Government. Independent bodies that make decisions in the common interests of the

population are appropriate and welcome in areas where direct electoral accountability

would be unsuited.

2.2.1.

Input Legitimacy

When considering the legitimacy of the European Semester, institutional features are

therefore important. On the input side, European Parliament and National Parliament

involvement in the process is important. However, there are two main reasons for

questioning whether input legitimacy exists under the new procedures.

First, the European Parliament plays a minor role in the European Semester process.

the basis of Article 121 TFEU and Article 148 TFEU, the Council shall inform the European

Parliament of the adopted country-specific recommendations around July. In the present

report, we look at if greater involvement and a more active role for the Parliament is

desirable to increase legitimacy, and, if yes, how it should be achieved.

Second, the early discussion of fiscal and reform plans and the short period that

countries have to finalise their SCPs and NRPs limit their capacity to involve National

Parliaments. This time issue inevitably poses legitimacy concerns, in this case at national

level. At the same time, however, a benign interpretation of this development is that

National Parliaments may be informed of economic policy plans early in the year before

the standard budgetary process has started. One could, of course, argue that national

Government involvement suffices, but national Governments alone may take steps that

are counter to the European interest. In these cases, independent bodies should play a

role to assure adequate output legitimacy. In the European context, the Commission is

the obvious player.

2.2.2.

Output Legitimacy

Transparency plays a key role and is a pre-condition for assessing the degree of output

legitimacy of any decision. Thus, for the European Semester to be legitimate it is

necessary that the issues at stake are clear and transparent. Unfortunately, the first

cycle of the European Semester is characterised by some grey areas. For example, in

general, our review of the evidence is that the Council’s country-specific documents at

the end of the cycle water down many of the Commission’s recommendations. This

undermines the credibility of the AGS upon which the Commission’s recommendations

are based and thus also the transparency of the European Semester, depriving the entire

process of the pre-conditions for output legitimacy. We believe that the European

Parliament may indeed play a stronger role in the dissemination and interpretation of the

priorities and objectives identified at the beginning of each year for the purpose of

transparency.

Similarly, the European Parliament’s impact on the BEPGs, upon which the Semester’s AGS is based, was also

minimal.

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Policy Department A: Economic and Scientific Policy

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The Parliament can serve as an institutional check to be sure that Council revisions to

Commission recommendations do not undermine the general welfare of European

citizens.

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How Effective and Legitimate Is the European Semester? Increasing the Role of the European Parliament

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MEMBER STATE EXAMPLES

For the purposes of the present study, we have selected six EU countries: Estonia,

Finland, France, Germany, Hungary and Ireland. They represent large and small Member

States; countries that joined the European Union at different times; countries that have

adopted the euro and countries that are still outside; countries whose main trading

partner is the rest of the EU and others whose economic interests lie also outside;

countries that are and are not under EU-IMF conditionality; and countries that vary in

their use of multi-annual fiscal frameworks in their domestic budget systems. Hallerberg,

Strauch, and von Hagen (2009) argue that there are two ways institutionally to centralise

the budget process to promote greater fiscal discipline. The first involves delegating

powers of decision to a strong Ministry of Finance (MoF). The second involves fiscal

contracts between parties in coalition. In the latter case, the 'contract' serves not only a

fiscal objective but also a political one. Multi-annual fiscal plans are more likely to be

detailed, and to be honoured, under a 'contract' form of fiscal governance. Moreover, as

Annett (2006) noted in his study for the IMF, Member States with contracts use the EU-

level rules to reinforce their own domestic rules. For this reason, one may expect that

'contract' fiscal governance countries would be more likely to integrate elements of the

European Semester into their domestic frameworks than would 'delegating' states. The

extent to which each country fits the theoretical ideal type varies, however, as we will

explain below. Annex II gives details for each of the six countries we have selected.

It is possible to assume that the features mentioned above partly explain countries’

approaches to the European Semester. 'New' Member States may be more inclined to

follow the new procedure as accurately as possible. Older Member States that have

demonstrated historically a strong interest in economic policy coordination, in whatever

form, may try to interpret the European Semester in a more original fashion; the Franco-

German initiative for a Euro-Plus Pact would support this hypothesis. Countries whose

sole trading partner is in the euro area or in the EU would be more committed to

ex ante

economic-policy coordination between countries and policy areas. For countries under

conditionality, the first European Semester cycle should not be relevant as their

economic policy strategy is in any case strictly defined by and designed according to their

individual adjustment programmes. Finally, stronger national fiscal frameworks would

adapt better and more promptly to the new framework than weak ones.

Estonia is a small Member State that joined the EU in 2004. It has a proportional

representation electoral system. It is a contract state in terms of fiscal governance. The

'contracts', however, are not that developed — while there is some basis for medium-

term fiscal planning and

ex ante

coordination with the aim of fixing fiscal targets, there is

little consistency between multi-annual and annual targets.

Finland is a small country that joined the EU in 1995. The Finnish electoral system is

based on proportional representation; and is characterised by many political parties, high

variance of ideological preferences, and relatively frequent Government changeovers. In

line with the contract approach, at the end of December of the previous year, individual

Ministries propose spending limits for the next three years to the Ministry of Finance;

quantitative limits are eventually agreed on in March; Ministries will exploit the time from

then to mid-September to specify and then negotiate with the MoF the contents of their

spending plans. The country enjoys a very strong Medium-term Budgetary Framework

(MTBF); there is a national multiannual plan that compounds the Stability Programmes

submitted to the EU and this is well coordinated with the annual budgetary process.

See the Commission’s Fiscal Governance Database.

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Policy Department A: Economic and Scientific Policy

_________________________________________________________________________________________

France and Germany are both large states and EU founding members. Both countries

also follow a delegated approach. In terms of electoral system, France has a form of

plurality while Germany has a two-ballot system, with the first ballot based on plurality

and the second proportional representation. The distribution of seats depends mostly on

the proportional representation ballot. In France, survey-based evidence provided by the

Commission points to the existence of a highly developed MTBF with the strong

involvement of Parliament

, but in fact our evidence specifically addressing the role of

National Parliaments shows a more nuanced picture. Parliament debated fiscal and

structural plans in 2010 but not in 2011, and there are no plans to do so in 2012 because

of scheduled elections. The German 'Medium Term Financial Plan' provides multi-annual

targets that are at times detailed, but they are indicative only and they do not structure

future spending to the extent found in Finland.

Hungary joined the EU in 2004 and is not yet part of the euro area. Given that it has a

one-party Government it should be a delegating state, although in practice the Finance

Minister is institutionally weak when compared to other EU countries (Hallerberg and

Yläoutinen 2010). In formal terms according to the Commission’s (2009) assessment of

medium-term frameworks, Hungary has a framework as strong as Finland’s, but in

practice the Government has not maintained the spending limits promised in those

frameworks to the same degree as Finland, and the MTFF in practice is indicative only

(Hallerberg and Yläoutinen 2010).

Ireland is a small country that joined the EU in 1973 and is the only country in our

sample that was under EU and IMF conditionality during the first Semester cycle. It has a

single transferable vote electoral system. It is would be a 'contract' county according to

the terminology of Hallerberg

et al.(2009),

although the nature of the 'contract' today

focuses on what the Government (both the previous and current) has promised the EU

and IMF.

In the following two sections, we assess the degree to which this set of Member States

have integrated the European Semester according to what they have submitted under

National Stability or Convergence Programmes and National Reform Programmes. We

also consider if and how National Parliaments have responded.

See above.

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EFFECTIVENESS

THE

NATIONAL

LEVEL:

STABILITY/

CONVERGENCE

PROGRAMMES

AND

NATIONAL REFORM PROGRAMMES

KEY FINDINGS



Member States have adapted differently to the European Semester.

Ownership of and adherence to the new economic policy coordination cycle

appears strongest in the new Member States (Estonia and Hungary); not relevant

in countries under programmes (Ireland); strong but more freely interpreted in

the larger old Member States (France and Germany) and weaker in small newish

Member States that entertain intensive economic relations with countries outside

the euro area or the EU (Finland).

We isolate three indicators that should provide insights into Member States’ adaptation to

the Semester: i) ownership of the cycle; ii) the relative strength of

ex ante

guidance; and

iii) the adoption of an integrated approach (i.e. the acknowledgment of spill-over effects

between fiscal actions and structural reforms). The analysis is based on an assessment of

national SCPs and NRPs. Table 1 contains information on the submission schedule.

Table 1: Submission’s schedule

SCP

Estonia

Finland

France

Germany

Hungary

Ireland

29.04.2011

06.04.2011

03.05.2011

27.04.2011

15.04.2011

29.04.2011

NRP

29.04.2011

06.04.2011

03.05.2011

07.04.2011

15.04.2011

29.04.2011

COM Rec.

07.06.2011

COUNCIL

Rec.

12.07.2011

Source:

DGECFIN and national sources.

The level of ownership in each country is assessed by accounting for explicit references

to the European Semester cycle in national fiscal and structural plans. Member States

that explicitly mention the European Semester and/or provide details about their effort to

adjust to the new procedure are said to have a stronger sense of ownership than

countries in which the new procedure is not even explicitly referenced.

Second, we assess the success of

ex-ante

guidance. To do so, we focus on the contents

of the AGS and the extent to which national plans mirror both the priorities and the

objectives identified in the Commission’s documents. The first Semester cycle started

with the submission by the Commission of the first AGS on 12 January 2011. Annex I

provides a list of its policy priorities and objectives. The document identifies three policy

priorities: fiscal consolidation, labour market reform and growth-enhancing measures.

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Policy Department A: Economic and Scientific Policy

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In turn, the Commission identifies ten objectives that support these three priorities: i)

rigorous fiscal consolidation, ii) the correction of macroeconomic imbalances, iii) stability

in the financial sector, iv) higher labour market participation v) pension system reform,

vi) lower unemployment, vii) flexicurity, viii) the completion of the Single Market, ix)

greater use of private capital to finance growth, and x) cost-effective access to energy.

We assume that

ex ante

guidance in the form of the AGS is more successful the more

explicitly Member State endorse the AGS and adopt measures consistent with the AGS’

objectives.

Third, we evaluate the extent to which Governments in the selected countries have

adopted an integrated approach in the sense that they have acknowledged and possibly

quantified spill-over effects across macroeconomic and structural measures, ranging from

the fiscal consequences of reform to the incorporation of reform scenarios in budgetary

projections.

The French and German documents contain references to the European Semester and in

particular to the Franco-German initiative for a Euro-Plus Pact. They are thus

characterised by a strong political commitment to economic policy coordination in the

euro area. France recognises the role of the Semester especially in the area of structural

reforms, as in its NRP, while the Stability Programme builds on previous EU assessments

of French fiscal plans. The German Government, on the other hand, seems wary of

ex-

ante

coordination under the European Semester more in the fiscal arena than in the area

of structural reform.

In the French NRP, there is a high degree of adherence to the

AGS, with strong emphasis on the sustainability of public finances, pension reform,

labour market inclusion, flexicurity, more efficient use of resources to reduce greenhouse

gas emissions, access to SMEs and stronger competition in post and telecommunications,

transport and electricity. The structural interventions identified in the German NRP relate

to increasing labour market participation, improving conditions for R&D and innovation,

reducing emissions and investing in cost-efficient renewable energies, improving

educational attainment and promoting social inclusion. Finally, with reference to the

recognition of complementarities between policy areas, the French Government

recognises the potential for spill-over effects across policy domains but these are

quantified only in the Stability Programme. The opposite occurs in the German

documents. Only the German NRP contains indications about spill-over effects, the size of

which is also quantified; on the other hand, there is less on the integrated approach in

the Stability Programme.

Estonia and Finland also have strong national specificities, though for different reasons.

The Estonian documents contain references to the European Semester, Europe 2020 and

the Euro-Plus Pact. By contrast, the Finnish documents do not make explicit reference to

the new logic of the European Semester in either document.

As to the strength of

ex-

ante

guidance, the Estonian NRPs emphasise the achievement of a medium-term

budgetary objective (MTO) of surplus, improving the sustainability of social expenditure,

continuing the gradual reduction of taxes on labour and profits, and increasing taxes on

consumption and energy, avoiding macroeconomic imbalances, even if precise

interventions are not identified, increasing youth employment, and implementing long-

term structural changes in the energy sector.

The first multiannual BEPGs of 2003-2005 – the natural precedent of the AGS - listed 27 guidelines. The

BEPGs for 2005-2008 reduced them to 16. By bringing them to 10, the AGS makes further progress into the

streamlining of economic policy guidelines.

“By pursuing the line of fiscal policy presented in this Stability Programme, Germany will fully comply with

these (i.e. excessive deficit procedure) requirements. The economic policy components of the consolidation

procedure are contained in the National Reform Programme, and the measures therein with financial impact are

simultaneously covered by the fiscal strategy and projection for public finances that are contained in the

Stability Programme” (German Stability Programme).

The documents were put together before the general election.

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There is also awareness of the spill-over across the fiscal and the structural domains and

an indication of the cumulative impact of measures. In the Finnish NRP, there is an

emphasis on the need to guarantee the sustainability of public finances, support

employment and fix climate and energy targets. There is little acknowledgment of the

spill-over effects across the fiscal and other macroeconomic domains and no estimation

of the impact of the suggested measure.

Finally, both Hungary and Ireland are special cases, the former for not being a euro area

member, for having held the EU Presidency in the first Semester cycle and for being in

fact under post-programme surveillance after having received financial support from the

EU under the so-called Medium-Term Financial Assistance (MTFA) facility. Ireland, on the

other hand was under conditionality in the first Semester cycle. The Hungarian

documents suggest a very high level of commitment to the European Semester as well as

to the Euro-Plus Pact, to which non-euro area members can only commit on a voluntary

basis. The NRP is well-aligned with the AGS, including measures to increase the

sustainability of public finances, increase labour market participation, reform the pension

system and social protection, boost vocational training and incentivise the use of

renewables. There is also great attention devoted to spill–over effects both in the

Stability Programme and in the NRP. Submitted on 29 April, the Irish Stability

Programme and NRP largely mimic the commitments the country has taken on board

with the adjustment programme agreed with the EU and the IMF. For a country under

conditionality, in fact, the strong umbrella for coordination provided by the European

Semester has no relevance since the country is obliged to stick to the detailed fiscal and

reform plan. In turn, none of the documents explicitly refer to the new framework. The

listed measures are those of the adjustment plan, and the NRP is mostly developed along

EU 2020 guidelines rather than being explicitly tailored around the AGS. There is also no

attention to spill-over effects, but these may be implicit in the adjustment plan agreed

with EU authorities.

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Policy Department A: Economic and Scientific Policy

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EFFECTIVENESS

THE

EUROPEAN

LEVEL:

CHALLENGES OF INTEGRATED ANALYSIS AND POLICY

FORMULATION

KEY FINDINGS



EU Institutions need to adapt to the new economic policy coordination cycle. The

Commission will have to identify the optimal fiscal and structural stance early on

and prioritise across policy areas and countries.

The interaction between the European Semester and the new economic

governance is ambiguous. It is not clear how the use of an integrated legal text

will affect surveillance. Moreover, the Council’s rationale for departing from some

of the Commission’s country-specific recommendations is not transparent.



5.1.

The choice of optimal fiscal and structural policy

First, the European Semester requires the analysis and formulation of policies to be

integrated across countries and across policy areas. The alignment of the SCP and NRP in

Member States and the renewed emphasis on the relevance of complementarities

between fiscal policy and structural questions requires the identification and prioritisation

of policy measures. This is a challenging task for the Commission.

5.2.

Prioritisation across policy areas

Second, the

ex-ante

nature of the European Semester requires the Commission to come

to an assessment of optimal fiscal and structural policy earlier in the process. For this, it

needs to formulate earlier than under the old regime its view on the optimal fiscal stance

for the euro area as a whole and the corresponding optimal level of deficits in line with

Treaty obligations for the different Member States. This guidance needs to be grounded

in solid analysis to convince National Parliaments of the importance of keeping to the

proposed budget levels. Intervening early may also represent a risk in case economic

circumstances change rapidly, but this risk must be weighed against the cost of less

coordination and guidance. The AGS may be more effective in the area of structural

policy, where circumstances change less quickly, than in the area of fiscal policy, where

sudden macroeconomic shocks may require quick action.

5.3.

Political and economic trade-offs

Third, it will be challenging to prioritise across policy areas. For example, the European

Commission may highlight as it did in its first AGS that economic growth as well as high

employment are areas of key importance. After an endorsement and confirmation of

these overarching goals by the European Council, the Member State will then need to

translate these goals into concrete policy measures in their NRPs. The Commission

assesses these measures in a recommendation for a Council recommendation on the

NRPs. In this recommendation, the Commission prioritises the policy areas in which

action should be taken in the next year.

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This evidently involves a judgement by the Commission. In the recommendations

published on 7 June 2011, a prioritisation is made. However, it is not transparent how

and on what grounds this prioritisation was reached. While many of the

recommendations appear to be completely sensible, greater transparency would help

increase ownership and in turn foster effectiveness, also at the national level.

5.4.

Prioritisation across countries

Fourth, there are also cases in which policy recommendations may be subject to political

and economic trade-offs. For example, pension reform may be economically necessary

but may involve short-term economic costs in the introduction phase. Such a reform may

also incur significant political costs, which may prevent the Government from

undertaking equally important reforms of the labour market. While the Commission may

form a view on the relative political feasibility, ultimately it is a difficult exercise to

calibrate political and economic trade-offs. It therefore becomes all the more important

that economic prioritisation by the Commission in its recommendation for a Council

recommendation is well explained and justified.

5.5.

Interaction with the new economic governance framework

Fifth, the Commission chose to give policy recommendations to all 27 Member States,

treating them all, except for the countries receiving financial assistance in a programme,

on an equal footing. This policy decision may make more pertinent and biting

surveillance more difficult. So far, the Commission has not attempted to differentiate and

prioritise policy actions across countries; therefore it is difficult for the Council to

prioritise the urgency of policy actions across countries. Put differently, should a policy

recommendation given to a troubled country not be more urgent than a policy

recommendation to a country without major economic difficulties? The current way of

presenting recommendations suggests that all countries need to take policy actions in an

equally urgent way. It also remains to be seen how the analysis of cross-country spill-

overs can be improved in the current set-up, which focuses on individual economies.

Clearly it would be a task for the Commission to guide the Council on which countries

they should pay particular attention to.

5.6.

The challenges of an integrated legal text

Sixth, it remains to be seen how the European Semester will interact with the new EU

economic governance framework emerging from the reform of financial supervision, the

currently debated governance package and the Euro-Plus Pact. The currently debated

governance pact includes a regulation on the prevention and correction of

macroeconomic imbalances. This regulation has an overlapping Treaty base with the

BEPGs and the related NRPs, namely Article 121 TFEU. The Commission is designing an

early-warning mechanism to issue policy recommendations suitable to prevent

macroeconomic imbalances. Here, it will be important to draw a clear line between the

regular NRP process and the preventive arm of the Excessive Imbalance Procedure. This

could be done, for example, on the basis of the severity of the potential imbalance and

the extent of spill-overs arising from the imbalances. These two criteria will be all the

more important for the corrective arm of the EIP, which should kick in in case of severe

imbalances threatening the functioning of EMU.

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Policy Department A: Economic and Scientific Policy

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The corrective arm of the EIP is likely to be very intrusive in terms of economic policy

recommendations, and will ultimately lead to sanctions. In some policy areas, the EIP

and the newly founded European Systemic Risk Board are likely to overlap

. Here it will

be of great importance to avoid institutional conflict and benefit from the relative

strength of different institutions to reach an effective policy solution. Finally, the Euro-

Plus Pact is an important political-commitment device at the head of state and

Government level, even if monitoring stays in the Commission’s hands. Content-wise, it

overlaps significantly with the regular Treaty-based procedures. In sum, there is a

considerable number of different procedures emerging or already in place (see for

example Figure 2). Given the high number of procedures and the confusion that might

arise from it, political commitment and action on all fronts will be extremely important to

the success of the Semester process. Ideally, Member States should back the regular

Treaty-based surveillance by strengthening the Commission's independence and acting

decisively in the Council and at home once recommendations are issued.

5.7.

The Council acting on the basis of a Commission recommendation

Finally, and perhaps most importantly, while the Commission states that the SCP and

NRP are legally separate, this does not appear to be the case. In fact, for each Member

State, on 7 June 2011 the Commission issued a 'Recommendation for a Council

Recommendation on the NRP of [country x] and delivering a Council opinion on the

updated Stability Programme of [country x]'. Previously, the Council opinion has been a

separate legal instrument to the Council recommendation on the NRP. By combining

them in one document, analysis and policy recommendations get integrated. What used

to be the Council opinion is no longer a separate legal instrument as required by

Regulation 1466/97 (the preventive arm of the SGP). It is included in the Council

recommendation as expression of the Council's view on the SCPs. This comes with

significant risks and it could ultimately undermine the effectiveness of fiscal surveillance

for a number of reasons: (a) within the Commission, the integration across policy areas

could lead to weakening of the analysis and the subsequent policy conclusions on fiscal

policy (aspects of fiscal discipline can be traded-off against other policy objectives). By

opening up the document to include both policy areas, it is possible that different

Directorates-General (DGs) might have a say on the overall messages of the document,

thereby undermining the stringency of analysis and leading to faulty compromises; (b)

by having one integrated document, several different Council formations will discuss the

same document, potentially leading to an overlap. Political horse-trading could further

undermine the stringency of recommendations issued by the Council in the area of fiscal

policy. On the other hand, it is of course also possible that the integration will help

finance ministers to convince other Ministries more easily of the necessity of addressing

fiscal policy sustainability. Overall, it will be important that fiscal discipline cannot be

traded-off against other policy objectives, and that structural reforms are not delayed

when the fiscal situation is benign.

Wolff (2011).

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A final and very important issue is the extent to which policy recommendations given by

the European Commission are watered down in the Council. In this note we have not

conducted a systematic evaluation of this but preliminary evidence suggests that the

recommendations become weaker in some cases in the Council.

This may be

legitimate. However, this should happen in a transparent way. The European Parliament

could play an important role in this regard by asking the Council to be transparent about

its decisions and justify its actions, a topic we will elaborate on further below.

For example, the Council recommendation on Italy: the Commission recommended that the process of

opening up the services sector to further competition should be extended 'in particular in the field of

professional services', while the Council recommendation changes 'in particular' to 'including', a significant

weakening in emphasis. Similarly, there is evidence for such weakening in Hungary and a number of other

countries of our sample.

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Policy Department A: Economic and Scientific Policy

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ONE ASPECT OF INPUT LEGITIMACY: THE ROLE OF

NATIONAL PARLIAMENTS IN THE FIRST CYCLE

KEY FINDINGS



The adaptation of National Parliaments to the European Semester is strongly

affected by the nature and strength of national fiscal frameworks

There is more scrutiny of SCP in Parliamentary Committees under the new

system, even if such scrutiny was mostly behind closed doors.

Weaker National Parliaments are those that are more strongly in favour of an

involvement of the European Parliament in the Semester cycle. But only an

involvement with the plenary would provide added value to such collaboration.

National Parliaments can play an important, and useful, role in the European Semester.

They already have mechanisms in place to scrutinise their country's annual budget

proposals, they have to approve that budget, and they all investigate

ex-post

how the

budget was executed. They represent the principle source of input legitimacy in Europe's

parliamentary democracies and must surely be one target audience for the European

Semester. The change in the calendar for when a Government writes and submits a SCP

may mean that the National Parliament receives more detailed information about its

Government’s plans earlier. Parliaments also have some ability to change the

Government’s budget. If the Government ignores the advice it gets under the European

Semester, it is possible that a Parliament may react on its own. In addition to the

domestic arena, we also explore if there might be useful interaction between National

Parliaments and the European Parliament under the European Semester.

For this preliminary report, we conducted a survey on the role National Parliaments play

in the six Member States under study (see Annex III).

Before discussing the details, it

is important to note that one country, Ireland, is generally not relevant for most of the

questions we asked. It abolishes its Committees after each election and creates new ones

under a new Government. The new Committees post the 25 February 2011 elections had

not been formed in time to be relevant for the first cycle of the European Semester. The

information we have is based on past behaviour only, and in general the Irish Parliament

(the Oireachtas) has been a weak player in any case. Government Ministers inform

Parliament of submissions to the EU, but there have not been planned debates. The main

role of the Irish Parliament has been to provide an

ex post

audit of the Government’s

budget, rather than to play a role in the initial formation of multi-annual plans or in the

design of budgets.

A first issue to explore is the relative power of a National Parliament to change the

Government’s budget. We expect actual changes of any significant magnitude to be rare;

party discipline is high in many Member States, which means that Governments with

majorities usually pass their budgets, and Governments have the ability to hold a vote of

confidence on the budget where necessary. Nevertheless, more powerful Parliaments

may have the ability to impress upon Governments their concerns, and there may be a

connection between their ability to change the budget, the amount of monitoring they

do, and whether the Government needs to pay attention to what the Members of

Parliament say.

The survey questions are reproduced in Annex III.

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We examine i) if a Parliament can propose a budget independently of Government; ii) if

it can propose amendments; iii) if those amendments are limited; iv) if amendments face

an offset rule so that increased spending must be matched with spending cuts; v) if they

are offsetting relative to the budget balance; and vi) if amendments can cause the fall of

a Government. One can create an ordinal score for the strength of Parliament on the

budget that ranges from 0 to 6 based on these questions. The strongest Parliament is

in Finland, with a score of 5, followed by Germany (4), Estonia (2), France (2), Hungary

(1) and Ireland (0).

The second theme to explore is the role Parliaments have played to date in multi-annual

planning. Is there a multi-annual fiscal plan the Government uses in addition to its SCP?

If so, does the general plenary debate the plan? Does it vote and approve a multi-annual

plan? We ask the same questions for a country’s SCP – does the Parliament discuss and

vote on a Government’s SCP? We assume that this type of scrutiny would be public and

most likely to receive any press attention. Finally, we are interested in the timing of any

debate. Does the timing suggest that the Government would be able to adjust its plans

and/or that the timing corresponds to the timing of the Semester, or does it come late in

the calendar so that the Government is essentially informing Parliament of its plans?

Within our sample, two countries – Finland and Germany – regularly have plenary

debates concerning their Government’s multi-annual fiscal plans. The timing of the

debate traditionally in Finland is in April, but this debate will take place in October this

year because of recent elections, and it is uncertain when the debate will take place next

year. In Germany, there are two debates, in September and in November. The Estonian

Parliament had a debate on the Government’s multi-annual fiscal plans in May 2011, but

this was exceptional – there was not a similar debate in 2010 and none is currently

planned for 2012. Similarly, the French Parliament debated the Government’s multi-

annual fiscal plans in 2010 but not in 2011, and there are no plans to do so in 2012.

Among our sample, Finland is the only country where the Parliament has a vote on the

Government’s multi-annual plans and where parliamentary approval is expected. Turning

to a Government’s SCP, in no country does the plenary debate or approve what the

Government submits to the European Commission, and in no country are there plans to

introduce any plenary consideration in 2012.

We then ask the same questions for parliamentary Committees. One finding is that the

new timing for when a SCP is to be submitted has led to more consideration of it in

parliamentary Committees. In 2010 in Germany, the Committee did not discuss the

German Stability Programme, but it did discuss the Programme in April 2011 and there is

anticipation that the next Programme will be discussed in April 2012. In France, the

Committee on Finance, the General Economy, and the Control of the Budget discussed

the Government’s Stability Programme in April 2011 and voted on it in June. Unlike in

Germany, however, in the other countries there are no plans to have the same practices

in place in 2012. In Hungary, the Committee on Audit Office and Budget briefly

considered it, while the Committee on European Affairs spent more time on it. Once

again, this was not the practice in 2010.

A Parliament receives a score of 1 if the answer to questions 1-2 and 6 are yes and if 3 and 4-5 are no.

The Finnish Parliament also has the right to vote on Finland’s contribution under the European Financial

Stability Facility when funds are dispersed to a given Member State.

Concerning the Government’s multi-annual fiscal plans, the Budget Committee discusses them twice, in July

and in November, but it holds no vote on them.

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Policy Department A: Economic and Scientific Policy

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These changes are in addition to regular discussions of Stability Programmes in

Committees in Estonia and Finland, which were held in 2010, but with changes in the

calendar to align timing with the deadline for submission to the EU. Like Hungary,

Estonia had its European Affairs Committee, in addition to its Budget Committee,

consider its SCP.

While the regular discussion of a country’s SCP in its Parliament opens up a possible

channel for communication and even coordination with the European Parliament and with

other EU institutions such as the Commission, there is a potential practical problem. In

the Budget Committees in Estonia, Finland, France and Germany the discussion are held

in private. This is intentional. The sense is that one can have honest discussions as to

whether the Government’s fiscal plans are realistic only if they are not for attribution.

One participant in the survey noted that public debates quickly turn into 'shopping

window politics', with members of Parliament instinctively saying whatever the party line

is if they know that their comments will appear somewhere else later. It is also

noteworthy that the country where these discussions are open, Hungary, also has one of

the weakest Parliaments in institutional terms.

Finally, there was a series of questions as to whether a given Parliament planned to

initiate reforms to coordinate with the Semester and if it would be useful for a National

Parliament to engage in a joint debate on the Semester. No respondent indicated that

reforms were forthcoming because of the introduction of the European Semester. There

was, however, an interesting split on whether a joint debate would be useful.

Respondents from Estonia, Hungary and France welcomed such a possibility. The

Estonian commented that 'it’s important to step-by-step increase the role of the

Parliament in a joint debate on the European Semester with the European Parliament',

the Hungarian noted that 'a joint meeting or debate with the National Parliaments and

European Parliament on the European Semester may pave the way for closer cooperation

on this issue', while the French person stated that 'the National Parliaments and the

European Parliament have a joint interest in exchanging views on the procedures of the

European Semester: calendars, objectives, and modalities of eventual sanctions'.

In Finland and Germany, however, there was not the same level of enthusiasm, with the

first insisting that this 'would be contrary to the treaties' while the second answered

cautiously that any such decision is a political one. The sample is small, but one can

speculate that the responses are due to the relative strength of the respective Parliament

given that the weaker ones welcome European Parliament participation.

Returning to the theme of whether the European Semester enhances legitimacy, the

results are decidedly mixed. There was more scrutiny of the SCP in Parliamentary

Committees under the new system. Given that Member of Parliaments are

representatives of the people, this enhances input-oriented legitimacy. Some countries

such as France, however, unfortunately do not plan to continue this practice. Most of this

additional scrutiny at Committee level was behind closed doors and the average citizen

did not have a chance to learn about it. While plenary sessions are generally open and

provide one possible forum, in no country was there a plenary debate on a given SCP.

The results on whether European Parliamentary involvement together with a National

Parliament is desirable are intriguing, given that weaker Parliaments would prefer such

involvement. They suggest that the European Parliament may be able to compensate for

some deficiencies at the national level were European Parliament to play such a role. But

once again the lack of transparency within Committees could be an issue.

One question also asked whether the respondent knew of any case where a Government proposed an

updated budget after receiving critical comments from the ECOFIN Council. No respondent could remember

such a case.

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It is hard to see how

ex-ante

coordination between the European Parliament and a

National Parliament could take place, let alone be effective, if they are held only at the

Committee level. They would have to involve the plenary, which given the lack of plenary

interest so far does not seem likely.

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Policy Department A: Economic and Scientific Policy

_________________________________________________________________________________________

THE ROLE OF THE EUROPEAN PARLIAMENT

KEY FINDINGS



The European Parliament can play an important role as a forum for the exchange

of information and a watchdog in the relationship between the Commission and

the Council that would serve the purpose of increasing the European Semester’s

effectiveness and legitimacy.

We propose an Economic Dialogue on the European Semester that should mimic

the Monetary Dialogue.



As already mentioned, it is still not clear how the European Semester will fit into the

emerging new economic governance framework including the Euro-Plus Pact and the

governance package still under discussion. The role of the European Parliament may be

better defined once the overall governance framework becomes clearer. We will provide

a more detailed proposal on the exact role of the European Parliament in the full study to

be delivered in 2012. In the present paper, we propose a stronger role for the European

Parliament in more general terms. Still, we anticipate here some specific

recommendations, in the next section, on the points during the process when the

involvement of the European Parliament would be most appropriate.

The initial European Semester proposal foresaw a relatively minor role for the European

Parliament. The plenary held a discussion on the Commission’s AGS in February and was

informed by the Council of the agreed country-specific recommendations, as foreseen in

Article 121 TFEU.

The main challenges for the European Semester are to ensure its effectiveness and the

legitimacy of the process. As to its effectiveness, the preliminary evidence is that

countries have adapted differently to the new procedures depending on whether they are

'old' or 'new' Member States; if their economic interests lie exclusively with the EU or

not; and if they have strong or weak national fiscal frameworks. Secondly, it remains to

be seen if an integrated legal text containing recommendations to correct the course of

fiscal policy and intervene on individual markets through structural measures will end up

strengthening or weakening the overall economic-governance framework.

The European Parliament should in this context become a forum in which information is

exchanged and its role of watchdog for the relationship between the Commission and the

Council made more visible and effective. A clearer involvement of the European

Parliament would also offset current legitimacy concerns at the input and at the output

level.

To address both the effectiveness and legitimacy concerns, a wider Economic Dialogue

with the European Semester playing a central role should be put in place. We envisage

an Economic Dialogue with the Commission and the President of the European Council

that largely mimics the European Central Bank’s Monetary Dialogue. The President of the

European Council and the Trio-Presidencies should be required, in the framework of this

Dialogue, to inform the European Parliament of their own and other countries’ progress in

complying with the new procedures, to make sure that efforts are equally distributed and

the underlying conditions for successful coordination not compromised. At the end of

each Semester cycle, the European Parliament should have the power to hold both the

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How Effective and Legitimate Is the European Semester? Increasing the Role of the European Parliament

_________________________________________________________________________________________

Commission and the Council accountable for the final country-specific recommendations

that would be sent to each Member State.

The Dialogue’s format could be similar to that of the Monetary Dialogue with regular

discussions between the European Parliament, the Commission and the President of

ECOFIN on the preparation and follow-up of the AGS and the related country-specific and

horizontal recommendations. These discussions should be public in order to raise the

Semester’s public profile. However, the timing of such discussions cannot be random and

needs to be precisely defined. Moreover, the European Parliament also needs to adapt to

get the best out of the Economic Dialogue.

More detailed practical recommendations for the involvement of the European Parliament

are given in the next section.

After the Council has issued the policy recommendations to Member States, the

European Parliament should hold the Council and Commission accountable for their

actions. This should involve demanding a clear justification from the Council on why the

Commission's recommendations have been changed. This justification should be given in

a public hearing to the respective Committee of the Parliament. In the case of a euro

area country, the Eurogroup president should present the decision of the Council, while

in the case of a non-euro area country, the rotating presidency should appear before the

Committee. Moreover, the European Parliament should also hold the European

Commission accountable by calling on the responsible Commissioner to testify before the

Parliament (i) on the initial recommendations given and (ii) on whether the Council has

adopted these recommendations.

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Policy Department A: Economic and Scientific Policy

_________________________________________________________________________________________

POLICY RECOMMENDATIONS

The experience of the first year with the European Semester indicates a number of areas

of improvement. First, preliminary evidence on compliance with the Semester’s new

procedures shows that the Member States in our sample have adapted differently to the

new process. If it is persistent, cross-country variation in the speed of institutional

adaptation may create political tensions in the Council. Second, at the level of national

Parliaments, the main impact of the European Semester so far has been on the level of

consideration of a Government’s SCPs, and on the timing of when discussions took place

within Parliamentary Committees. Overall, the Semester’s legitimacy remains rather

weak. Third, it will be of key importance that the integration of policy recommendations

does not come at the cost of diluting the stringency of fiscal and structural surveillance.

Fourth, also for the new governance set-up, political commitment remains of central

importance.

A more precise definition of the role of the European Parliament in the Semester process

will help to address at least some of the challenges outlined above. While we believe that

the European Parliament can make an important contribution to enhancing both the

effectiveness and the legitimacy of the Semester, we found that there is no room for

obtaining the same results by strengthening, let alone changing, the nature of the

collaboration between National Parliaments and the European Parliament. In detail, we

recommend the following:



As already happened this year, the European Parliament should have a discussion

about the AGS to influence the subsequent (European) Council discussions. The

President of the European Parliament should have a clear mandate from the

European Parliament when participating in the European Council.

The plenary debate on the AGS should be based on a report put together by a

newly established European Semester Parliamentary Committee. This Committee

could be composed of members from the Committee for Economic and Monetary

Affairs, the Employment Committee, the Budget Committee and the Regional

Policy Committee. The involvement of the Regional Policy Committee guarantees

representation of territorial interests in a process that touches significantly on

European regions’ future budgetary constraints and growth potential, but hardly

involves regional actors in the planning phase, especially in more centralised

countries. A rapporteur should be identified early on in the process.

After the Council has issued the policy recommendations to Member States, the

European Parliament should hold the Council and Commission accountable. Did

the Council follow the Commission recommendations? If not, why did the Council

deviate and how can this deviation be justified? In turn, did the Commission issue

pertinent and stringent recommendations or did the Council have to sharpen

messages? The legal basis for holding the Commission and Council accountable is

Article 121(5) TFEU.



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How Effective and Legitimate Is the European Semester? Increasing the Role of the European Parliament

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

Such an

ex-post

accountability check of the European Parliament is preferable to

ex-ante

involvement of the European Parliament in the policy formulation process

for a number of reasons. One is that the European Parliament does not typically

have the technical expertise to delve into the deep economic issues underlying

policy recommendations. Moreover, many of the policy recommendations,

especially when they are part of the more stringent SGP and EIP, constitute

potentially problematic recommendations for Member States. In such situations,

fragmentation of the European Parliament along national lines is a risk. In

addition, countries subject to serious imbalances are likely to remain in the

different procedures for several years. In such a cyclical game, strong

accountability checks in one year will significantly shape the policy

recommendations in the following year thereby increasing the power of the

European Parliament.

In especially serious circumstances, the European Parliament should consider

asking National Ministers to testify before it on their obligations relative to the EU.

It is clear that National Ministers can be held accountable only to National

Parliaments. However, in the European Semester, they have an obligation also to

the EU, and the European Parliament could increase this obligation by calling on

them to testify. To be more effective, this should be done only in cases of severe

imbalance under the EDP or the EIP in case of serious breach of the Member

State’s obligation.

The European Commission faces the challenging task of integrating analysis and

policy recommendations across countries and policy areas while at the same time

coping with a difficult legal set-up. We recommend that the legal separation of

NRPs and Council opinions in the SCP should be maintained. Moreover, we

encourage the European Parliament to increase the resources available to the

European Commission to carry out effectively its surveillance mandate and to

ensure that cross-directorate collaboration is as effective as possible.



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Policy Department A: Economic and Scientific Policy

_________________________________________________________________________________________

REFERENCES



Annett, A. (2006), "Enforcement and the Stability and Growth Pact: How Fiscal Policy

Did and Did Not Change Under Europe’s Fiscal Framework”, IMF Working Paper No.

06/116. Washington, DC: International Monetary Fund.

Altomonte, C. and B. Marzinotto (2010), “Monitoring Macroeconomic Imbalances in

Europe: Proposal for a Refined Analytical Framework”. Policy Department A:

Economic And Scientific Policies. European Parliament.

European Commission, Database of Domestic Fiscal Governance, available at

http://ec.europa.eu/economy_finance/articles/db_indicators/article16351_en.htm

European Commission (2005), Integrated Guidelines for Growth and Jobs (2005 –

2008), COM(2005) 141, 12 April.

European Commission (2009), “Public Finances in EMU. 2009, 10th edition.”

European Economy,

5(2009).

European Commission (2010a), Reinforcing Economic Policy Coordination, COM(2010)

250, 12 May.

European Commission (2010b), Proposal for a Council Regulation amending

Regulation (EC) 1467/97 on speeding up and clarifying the implementation of the

excessive deficit procedure, COM(2010) 522, 29 September.

European Commission (2010c), Proposal for a Council Directive on requirements for

the budgetary framework of the Member States, COM(2010) 523, 29 September.

European Commission (2010d), Proposal for a Regulation of the European Parliament

and of the Council on the effective enforcement of budgetary surveillance in the euro-

area, COM(2010) 524, 29 September.

European Commission (2010e), Proposal for a Regulation of the European Parliament

and of the Council on enforcement measures to correct excessive macroeconomic

imbalances in the euro-area, COM(2010) 525, 29 September.

European Commission (2010f), Proposal for a Regulation of the European Parliament

and of the Council amending Regulation (EC) 1466/97 on the strengthening of the

surveillance of budgetary positions and the surveillance and coordination of economic

policies, COM(2010) 526, 29 September.

European Commission (2010g), Proposal for a Regulation of the European Parliament

and of the Council on the prevention and correction of macroeconomic imbalances,

COM(2010) 527, 29 September.

European Commission (2011a), Communication from the Commission to the

European Parliament, the Council, the European Economic and Social Committee and

the Committee of the Regions, Annual Growth Survey:

advancing the EU’s

comprehensive response to the crisis, COM(2011) 11, 12 January.

European Commission (2011b), Recommendation for a Council Recommendation on

the National Reform Programme 2011 of Italy and delivering a Council Opinion on the

updated Stability Programme of Italy, 2011-2014, SEC(2011) 810, 7 June.



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How Effective and Legitimate Is the European Semester? Increasing the Role of the European Parliament

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

European Council (1997), Council Regulation on speeding up and clarifying the

implementation of the excessive deficit procedure, (EC) 1466/97 7 July.

European Council (2011), Council Recommendation of 12 July 2011 on the National

Reform Programme of Italy and delivering a Council opinion on the updated Stability

Programme of Italy, 2011-2014, 12 July.

Gerlach, S., Schulz, A., and G. B. Wolff (2010), “Banking and sovereign risk in the

euro area”, CEPR Discussion Paper No 7833.

Hallerberg, M., Strauch, R., and J. von Hagen (2009),

Fiscal Governance: Evidence

from Europe.

Cambridge: Cambridge University Press.

Hallerberg, M. and S. Yläoutinen (2010), “Political Power, Fiscal Institutions and

Budgetary Outcomes in Central and East European Countries.”

Journal of Public

Policy,

30, pp. 45-62.

Hallerberg, M. (2010), “The Role of the European Parliament in the European

Semester: Increasing the Accountability of the Commission and Council”, European

Parliament, August.

Heritier, A. (2003), “New Modes of Governance in Europe: Increasing Political

Capacity and Policy Effectiveness”, in: Boerzel A. Tanja and Chicowski A. Rachel

(2003).

The State of the European Union, 6: Law, Politics, and Society,

Oxford:

Oxford University Press, pp. 105-126.

Scharpf, F. W. (1970),

Demokratietheorie zwischen Utopie und Anpassung.

Konstanz:

Universiitätsverlag.

Scharpf, F. W. (1999),

Governing in Europe: effective and democratic?,

Oxford

University Press.

Wolff, G. B. (2011), “The euro area’s macroeconomic balancing act”, Bruegel Policy

Contribution 2011/05.



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Policy Department A: Economic and Scientific Policy

___________________________________________________________________________________________________________________________________________

ANNEX I : ANNUAL GROWTH SURVEY

Three priorities:

Fiscal consolidation

Labour Market Reforms

Growth enhancing measures

Reforming pension system

‐

Link retirement age with life expectancy

Reduce early retirement schemes

Develop complementary private savings

Ten objectives:

Implementing a rigorous fiscal consolidation

‐

Annual adjustments of structural budget balance of 0.5% of GDP

Public expenditure growth below the rate of medium term trend

GDP growth

Set expenditure path

Front load structural budget deficits

Increase taxes (indirect, enlarge tax basis, eliminate subsidies)

Getting unemployed back to work

‐

Design benefits to reward return to work

Ensure coherence between the level of income taxes and

unemployment benefits

Adapt unemployment insurance systems to business cycle

‐

Balancing security and flexibility

‐

Introduce more open-ended contracts

Simplify the regimes for the recognition of professional

qualifications

‐

Correcting macroeconomic imbalances

‐

Decrease current account if the country is in deficit

Increase the domestic demand if the country is in surplus

Tapping the potential of the Single Market

‐

Fully implement the service directive

Remove unjustified quotas on professional services

Ensuring stability of the financial sector

‐

Restructure indebted banks

Increase bank capital requirements

Attracting private capital to finance growth

‐

EU project bonds

Facilitate access to finance for SMEs

Making work more attractive

‐

Shift taxes from labour

Flexible work arrangements and childcare facilities to facilitate

participation of the second earner

10. Creating cost effective access to energy

‐

Third internal market energy package

Step up energy efficiency policies

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ANNEX II: SURVEY COUNTRIES - OVERVIEW

Estonia

Population (million)

EU Membership

Euro area Membership

Under programme

Electoral System

Fiscal Governance

Duration of Government

Budget Proposal

Preparation

Fiscal Institutions:

Medium-Term Budgetary

Frameworks

Presentation of Proposal to

the National Parliament

Strength of Parliament in

the Budgetary Process

1.3

2004

2011

Proportional

Representation

Contract

Early-June to End-

September

Finland

5.4

1995

1999

Proportional

Representation

Contract

End-December to Mid-

September

France

65.1

Founding Member

1999

Plurality

Delegation

May-June to Early-

October

Germany

81.8

Founding Member

1999

2-tier Proportional

Representation,

adjustment seats.

Delegation

End-December to End-

June/Early-July

Hungary

10.0

2004

No but surveillance

Proportional

Representation

Delegation

Mid-April to End-

September

Ireland

4.5

1973

1999

Yes

Single Transferable Vote

Contract

April to Early-December

1.00

By the end of September

1.60

Mid-September

1.60

Before the 1

Tuesday of

October

1.40

Early-August

1.60

of September

0.60

Wednesday of

December

Population measured on the 1

of January 2011 – Total. Eurostat.

Year of EU entry. Http://europa.eu/about-eu/countries/index_en.htm.

Hallerberg, Mark, Strauch, Rolf, and Jurgen von Hagen (2009),

Fiscal Governance in Europe.

Cambridge: Cambridge University Press.

'A two-tiered electoral system is one where an upper level of seats is used to fill in the results at a lower level to make the overall distribution of seats more proportional'

(Hallerberg, Strauch, and von Hagen, 2007. Table 1).

Author calculations.

Indications on the important steps in the budget preparation in the EU Member States. European Commission, Directorate General for Economic and Financial Affairs (DG

ECFIN), Country Desks.

Medium-Term Budgetary Frameworks Index, median value, 2009. 'The index takes into account both the existence and properties of national medium-term budgetary

frameworks and the preparation and status of Stability and Convergence Programmes. The index captures the quality of the medium-term budgetary framework through five

criteria: (i) existence of a domestic medium-term framework, (ii) connectedness between the multi-annual budgetary targets and the preparation of the annual budget, (iii)

involvement of National Parliaments in the preparation of the medium-term budgetary plans, (iv) existence of coordination mechanisms between general Government layers

prior to setting the medium-term budgetary targets for all Government tiers, and (v) monitoring and enforcement mechanisms of multi annual budgetary targets.' European

Commission, Directorate General for Economic and Financial Affairs (DG ECFIN), Fiscal Governance, Medium-Term Budgetary Frameworks Database.

Http://ec.europa.eu/economy_finance/db_indicators/fiscal_governance/framework/index_en.htm.

Author Update.

Survey conducted for this paper. This indicator is an ordinal score ranging from 0 to 6 based on: i) whether a Parliament can propose a budget independently of

Government; ii) whether it can propose amendments; iii) whether those amendments are limited; iv) whether amendments face an offset rule so that increased spending must

be matched with spending cuts; v) whether they are offsetting relative to the budget balance; and vi) whether amendments can cause the fall of Government.

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Policy Department A: Economic and Scientific Policy

___________________________________________________________________________________________________________________________________________

ANNEX III: QUESTIONAIRE

2011

Questionnaire on Parliaments and the European Semester

Country: XXXX

Respondent: P1

This survey is intended to document the role that Member State Parliaments play in the preparation of documents for the European Union

on their economic policies under Economic and Monetary Union.

While we will use your survey in our study, we will not reveal the names of individuals who filled them out.

participation will be held in strictest confidence.

1. Planning Stage of the Budget Process

Member State Governments all formulate multi-annual economic plans for the European Union, which they traditionally have submitted to

the European Commission in December or January in the form of Convergence or Stability Programmes. Prior to 2011 this meant that the

European Commission would be evaluating budgets that Parliaments had already approved, rather than budget plans.

Under the European Semester, the calendar for the submission of Member State programmes has been moved to the spring before the

budget year. The expectation is that European consideration of a Member State’s fiscal plans will take place at the same time that a given

Government is evaluating its plans.

This section asks you to consider the role of your domestic Parliament in the formulation of your country’s fiscal plans both for the domestic

and European level. The second set of questions is for the main Budgetary Committee in the lower house of Parliament.

Your

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1.1Does your country use multi-annual budget programmes in addition to the Stability/Convergence Report it submits to

Brussels?

__Yes

__No

If the answer is yes, over how many years?

1.2Where are Government multi-annual government budget programmes formulated?

__Coalition Agreement

__Within the Ministry of Finance

__Within an intergovernmental body, such as a Council that brings together leaders of central and sub-national Governments (Please

explain the exact nature of the body in your country:________________________________________________________)

__Other (please explain):

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Policy Department A: Economic and Scientific Policy

___________________________________________________________________________________________________________________________________________

1.3 The Role of Parliament in the Formation of Multi-Annual Fiscal Plans: Plenary

What role does the plenary (or full Parliament) play in the formulation of the Government’s multi-annual fiscal plans and its Stability or

Convergence Programme? Please check a box for each year. Please check the appropriate box. If the answer is “yes,” please indicate the

approximate month the event takes place.

2010

Plenary

Has a Public Debate on the

Government's Multi-Annual Fiscal

Plans

Plenary

Has a Vote on the

Government's Multi-Annual Fiscal

Plans

Plenary

Has a Public Debate on

Government's Stability/ Convergence

Programme

Plenary

Has a Vote on Government's

Stability/Convergence Programme

Yes

If yes, Which

Month?

2011

Yes

If yes, Which

Month?

Expected 2012

If yes, Which

No Yes Month?

1.4 Does the Plenary play any other role in evaluating the Stability or Convergence Programmes the Government sends to

Brussels?

__Yes

__No

If yes, please explain:

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1.5 The Role of Parliament in the Formation of Multi-Annual Fiscal Plans: Committee(s)

Which Committee (or Committees) considers the Government’s budget proposal in the lower house of Parliament? Budget Committee?

Finance Committee? Other? Please provide:

______________________________________________________

Are Committee meetings usually ____secret or are they ____open to the public? If both apply, please explain:

The following questions concern the role of this

Committee

in the setting of the country’s multi-annual plan and Stability or Convergence

Programme. Please check the appropriate box. If the answer is “yes,” please indicate the approximate month the event takes place.

2010

Committee Has a Debate on the

Government's Multi-Annual Fiscal

Plans

Committee Has a Vote on the

Government's Multi-Annual Fiscal

Plans

Committee Has a Debate on the

Government's Stability or

Convergence Programme

Committee Has a Vote on the

Government's Stability or

Convergence Programme

Does the relevant Committee play any other role in evaluating the Stability or Convergence Programmes the Government sends to Brussels?

Yes

If yes, Which

Month?

2011

Yes

If yes, Which

Month?

Expected 2012

If yes, Which

No Yes Month?

__Yes

__No

If yes, please explain:

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Policy Department A: Economic and Scientific Policy

___________________________________________________________________________________________________________________________________________

2. The Role of Parliament in the Annual Domestic Budget Process

2.1. Can Parliament propose the annual budget

independently of the Government?

2.2. Can Parliament propose amendments to the

Government’s budget?

2.3. Are amendments to the Government’s budget

limited?

2.4. Are amendments offsetting in terms of

expenditures? That is, must additional spending be

matched with corresponding spending cuts?

2.5. Are amendments offsetting in terms of the

budget balance? That is, must additional spending

be matched with corresponding spending cuts or

revenue increases? (Difference from last questions:

revenue increases also possible.)

2.6. Can Parliamentary amendments cause the fall

of Government?

2.7. Is the treatment of expenditure and revenues

made separately or simultaneously within

Parliament?

2.8. Is there a time limit on the passage of the

budget in Parliament?

__Yes

__No

___Yes

__No

__Yes

__No

__Yes

__No

__Yes

__No

__Yes

__No

__Yes

__No

__Yes

__No

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2.9

Is there a general vote on the total budget within Parliament, and if so, when?

3. Monitoring the Implementation of the Budget

3.1What is the role of Parliament in monitoring the execution of the annual budget?

3.2 Does the Government inform the Parliament of outcomes mid-year? If so, how often?

4. Response to European Union Evaluation of Domestic Stability or Convergence Programmes

4.1 Do you know of any instance where the Government proposed a new budget after it received a critical review from the

Council of Ministers?

__Yes

__No

If yes, please provide details concerning what happened:

Planned Changes/Reforms

5.1 The European Semester introduces a revised review of the multi-annual budget plans of Member States. There are more

details that Member States will have to report, and the calendar is meant to coincide with the domestic budget process.

Does your Parliament plan to revise procedures at the domestic level in response to these reforms?

__Yes

__No

If yes, please provide details:

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Policy Department A: Economic and Scientific Policy

___________________________________________________________________________________________________________________________________________

5.2 Would you think it useful for your Parliament to engage in a joint debate on the European Semester with the European

Parliament?

__Yes

__No

Please explain your answer: