# C_2015313EN.01002201.xml

| 22.9.2015 | EN | Official Journal of the European Union | C 313/22 |
| --- | --- | --- | --- |

22.9.2015

EN

Official Journal of the European Union

C 313/22

---

Opinion of the Committee of the Regions — Making the best use of the flexibility within the existing rules of the Stability and Growth Pact

(2015/C 313/06)

| Rapporteur: | Olga ZRIHEN (BE/PES) Member of the Walloon Parliament |
| --- | --- |
| Reference document: | Communication from the Commission to the European Parliament, the Council, the European Central Bank, the Economic and Social Committee, the Committee of the Regions and the European Investment Bank: Making the best use of the flexibility within the existing rules of the Stability and Growth Pact
  COM(2015) 12 final |

Rapporteur:

Rapporteur:

Olga ZRIHEN (BE/PES) Member of the Walloon Parliament

Reference document:

Reference document:

Communication from the Commission to the European Parliament, the Council, the European Central Bank, the Economic and Social Committee, the Committee of the Regions and the European Investment Bank: Making the best use of the flexibility within the existing rules of the Stability and Growth Pact

COM(2015) 12 final

POLICY RECOMMENDATIONS

POLICY RECOMMENDATIONS

THE EUROPEAN COMMITTEE OF THE REGIONS

| 1. | welcomes the fact that the Commission communication, together with the Investment Plan, reflects the priority given by the new Commission to boosting public and private investment, having observed the current significant under-investment, as the level of investment in the EU is currently EUR 230 to EUR 370 billion lower, in terms of GDP equivalence, than the annual average in 2007; |
| --- | --- |

1.

welcomes the fact that the Commission communication, together with the Investment Plan, reflects the priority given by the new Commission to boosting public and private investment, having observed the current significant under-investment, as the level of investment in the EU is currently EUR 230 to EUR 370 billion lower, in terms of GDP equivalence, than the annual average in 2007;

| 2. | supports the Commission’s aim of making the best possible use of flexibility in the interpretation of the existing provisions of the Stability and Growth Pact (SGP) in order to ensure, not least, that it has the necessary counter-cyclical effects in the current context of sluggish growth, a very high average level of unemployment in the EU and a trend towards widening regional disparities resulting from the uneven nature of the collapse in investment, which has mainly affected the weakest countries. It considers that this should be a long-term objective, extending beyond the time scale of the Investment Plan that is the subject of this opinion; |
| --- | --- |

2.

supports the Commission’s aim of making the best possible use of flexibility in the interpretation of the existing provisions of the Stability and Growth Pact (SGP) in order to ensure, not least, that it has the necessary counter-cyclical effects in the current context of sluggish growth, a very high average level of unemployment in the EU and a trend towards widening regional disparities resulting from the uneven nature of the collapse in investment, which has mainly affected the weakest countries. It considers that this should be a long-term objective, extending beyond the time scale of the Investment Plan that is the subject of this opinion;

| 3. | notes that the Commission has presented a text that has not been submitted to the other European institutions for prior consultation and that is not being handled via an interinstitutional procedure. Questions, moreover, the legal certainty provided by this ‘interpretative communication’, given the fact that it is non-binding and that the SGP does not explicitly provide for use of this kind of legal instrument, with the result that it is likely to give rise to appeals to the Court of Justice of the European Union; |
| --- | --- |

3.

notes that the Commission has presented a text that has not been submitted to the other European institutions for prior consultation and that is not being handled via an interinstitutional procedure. Questions, moreover, the legal certainty provided by this ‘interpretative communication’, given the fact that it is non-binding and that the SGP does not explicitly provide for use of this kind of legal instrument, with the result that it is likely to give rise to appeals to the Court of Justice of the European Union;

| 4. | considers it necessary to clarify the share of expenditure on national co-financing that can be effectively excluded from the calculation of the structural budget balance for the purposes of complying with the preventative arm of the SGP; |
| --- | --- |

4.

considers it necessary to clarify the share of expenditure on national co-financing that can be effectively excluded from the calculation of the structural budget balance for the purposes of complying with the preventative arm of the SGP;

| 5. | considers that the conditions imposed on the application of flexibility, including the fact that flexibility is essentially limited to the preventive arm of the SGP, are too restrictive to be applied consistently across the whole of the European Union and to have a real impact on Member States’ and local and regional authorities’ investment capacity and do not allow for the degree of underinvestment at national or regional level; therefore believes that flexibility in the area of investment should be extended to all the Member States, and calls on the Commission to make proposals to this end; |
| --- | --- |

5.

considers that the conditions imposed on the application of flexibility, including the fact that flexibility is essentially limited to the preventive arm of the SGP, are too restrictive to be applied consistently across the whole of the European Union and to have a real impact on Member States’ and local and regional authorities’ investment capacity and do not allow for the degree of underinvestment at national or regional level; therefore believes that flexibility in the area of investment should be extended to all the Member States, and calls on the Commission to make proposals to this end;

| 6. | welcomes the fact that, in the preventive arm of the SGP, the investment clause is broadened to take account of Member States’ investment programmes, not least under the structural and cohesion policies, the Youth Employment Initiative, trans-European networks and the Connecting Europe Facility, as well as co-financing under the European Fund for Strategic Investment (EFSI). The Committee reiterates the will to tackle the economic crisis and the increasing distance between the centre of Europe and peripheral regions by using counter-cyclical measures designed to boost investment, once again placing trust at the heart of the EU agenda. It therefore reaffirms its own position, set out in its opinion of 17 April 2015 on the proposal for a regulation on the EFSI, that all national co-financing for the EFSI should be exempt from SGP calculations irrespective of the Member States’ situation with regard to the pact, so as to avoid the risk of countries with a greater need for new investment being unable to make even investments supported by European funding. It is necessary, in other words, to avoid curbing co-financing of investment projects and exacerbating the growth differential within the euro area; |
| --- | --- |

6.

welcomes the fact that, in the preventive arm of the SGP, the investment clause is broadened to take account of Member States’ investment programmes, not least under the structural and cohesion policies, the Youth Employment Initiative, trans-European networks and the Connecting Europe Facility, as well as co-financing under the European Fund for Strategic Investment (EFSI). The Committee reiterates the will to tackle the economic crisis and the increasing distance between the centre of Europe and peripheral regions by using counter-cyclical measures designed to boost investment, once again placing trust at the heart of the EU agenda. It therefore reaffirms its own position, set out in its opinion of 17 April 2015 on the proposal for a regulation on the EFSI, that all national co-financing for the EFSI should be exempt from SGP calculations irrespective of the Member States’ situation with regard to the pact, so as to avoid the risk of countries with a greater need for new investment being unable to make even investments supported by European funding. It is necessary, in other words, to avoid curbing co-financing of investment projects and exacerbating the growth differential within the euro area;

| 7. | points out that the CoR has called consistently for public spending by Member States and local and regional authorities under Structural and Investment Fund co-financing not to be included among national or equivalent structural expenditure as defined in the SGP, without other conditions, given that this investment is by definition of general European interest and has a proven leverage effect when it comes to sustainable growth; |
| --- | --- |

7.

points out that the CoR has called consistently for public spending by Member States and local and regional authorities under Structural and Investment Fund co-financing not to be included among national or equivalent structural expenditure as defined in the SGP, without other conditions, given that this investment is by definition of general European interest and has a proven leverage effect when it comes to sustainable growth;

| 8. | notes that, even before the Commission assesses their compliance with the SGP, consideration of Member States’ contributions to the new European Fund for Strategic Investments (EFSI) is dependent on their statistical classification by Eurostat, in accordance with the definitions set out in the European System of Accounts (ESA); |
| --- | --- |

8.

notes that, even before the Commission assesses their compliance with the SGP, consideration of Member States’ contributions to the new European Fund for Strategic Investments (EFSI) is dependent on their statistical classification by Eurostat, in accordance with the definitions set out in the European System of Accounts (ESA);

| 9. | believes that the structural reform clause applied under the preventive arm and the way structural reform plans are taken into account under the corrective arm can provide strong incentives, provided that the types of structural reform eligible under this new system are clearly defined. This definition must take into account the need for structural reforms to have positive socioeconomic impact, comply with the horizontal social clause set out in Article 9 TFEU and bolster administrative capacity, as well as the fact that structural reforms require an implementation or transition period and entail a certain short-term cost before bearing fruit and producing the desired positive effects, including budgetary effects; |
| --- | --- |

9.

believes that the structural reform clause applied under the preventive arm and the way structural reform plans are taken into account under the corrective arm can provide strong incentives, provided that the types of structural reform eligible under this new system are clearly defined. This definition must take into account the need for structural reforms to have positive socioeconomic impact, comply with the horizontal social clause set out in Article 9 TFEU and bolster administrative capacity, as well as the fact that structural reforms require an implementation or transition period and entail a certain short-term cost before bearing fruit and producing the desired positive effects, including budgetary effects;

| 10. | strongly regrets that the communication does not delineate more precisely the kind of ‘unusual event’ beyond the control of a Member State that would be grounds for it to temporarily deviate from the corrective path with regard to its medium-term budgetary objective (MTO) and thus leaves the European Commission very considerable political discretion, which could lead to preferential treatment for one or other Member State; |
| --- | --- |

10.

strongly regrets that the communication does not delineate more precisely the kind of ‘unusual event’ beyond the control of a Member State that would be grounds for it to temporarily deviate from the corrective path with regard to its medium-term budgetary objective (MTO) and thus leaves the European Commission very considerable political discretion, which could lead to preferential treatment for one or other Member State;

Further proposals for reform

Further proposals for reform

| 11. | reiterates (1) its call for the methods of calculating the structural deficit to be revised, in that in its current form the concept fails to take into account either the individual characteristics of national and regional economies, or structural differences in national and regional public spending, or the difference between current expenditure and investment expenditure. Furthermore, the concept is based on theoretical calculations of growth potential that are not empirically verifiable and therefore disputable, opening the door to discretionary implementation of the SGP; |
| --- | --- |

11.

reiterates (1) its call for the methods of calculating the structural deficit to be revised, in that in its current form the concept fails to take into account either the individual characteristics of national and regional economies, or structural differences in national and regional public spending, or the difference between current expenditure and investment expenditure. Furthermore, the concept is based on theoretical calculations of growth potential that are not empirically verifiable and therefore disputable, opening the door to discretionary implementation of the SGP;

1

| 12. | calls on the Commission to assess whether the current 1/20 debt reduction rule is still viable or whether it ought to be revised; |
| --- | --- |

12.

calls on the Commission to assess whether the current 1/20 debt reduction rule is still viable or whether it ought to be revised;

| 13. | suggests the use, under the Macroeconomic Imbalance Procedure (MIP), of auxiliary indicators covering regional disparities with the aim of taking account of any structural imbalances in terms of territorial cohesion that Member States might be facing and that might impact on the level and pace of budgetary adjustment and of possible structural reforms; |
| --- | --- |

13.

suggests the use, under the Macroeconomic Imbalance Procedure (MIP), of auxiliary indicators covering regional disparities with the aim of taking account of any structural imbalances in terms of territorial cohesion that Member States might be facing and that might impact on the level and pace of budgetary adjustment and of possible structural reforms;

An European agenda for promoting quality investment

An European agenda for promoting quality investment

| 14. | stresses that the Investment Plan should be part of a broader European strategy that is closely linked to the review of the Europe 2020 Strategy, with the aim of facilitating sustainable and job-rich growth through stimulating public and private investment, improving the competitiveness of Europe’s economy and introducing structural reforms that have positive social and economic effects and help to improve administrative capacity; highlights, in this context, the role of local and regional authorities in boosting investment for jobs and growth, given that in 2013 around 55 % of all public investment was carried out by subnational authorities (2); |
| --- | --- |

14.

stresses that the Investment Plan should be part of a broader European strategy that is closely linked to the review of the Europe 2020 Strategy, with the aim of facilitating sustainable and job-rich growth through stimulating public and private investment, improving the competitiveness of Europe’s economy and introducing structural reforms that have positive social and economic effects and help to improve administrative capacity; highlights, in this context, the role of local and regional authorities in boosting investment for jobs and growth, given that in 2013 around 55 % of all public investment was carried out by subnational authorities (2);

2

| 15. | would reiterate a number of proposals designed to promote quality investment at European level (3):






  — | the request made in the context of the mid-term review of the Europe 2020 Strategy for an indicator relating to the investment rate to be included in the macroeconomic scoreboard, |
| --- | --- | --- |

15.

would reiterate a number of proposals designed to promote quality investment at European level (3):

3

—

the request made in the context of the mid-term review of the Europe 2020 Strategy for an indicator relating to the investment rate to be included in the macroeconomic scoreboard,

| — | the call for the European Commission to publish a white paper setting out an EU-level typology for the quality of public investment in public spending accounts on the basis of long-term effects, |
| --- | --- |

—

the call for the European Commission to publish a white paper setting out an EU-level typology for the quality of public investment in public spending accounts on the basis of long-term effects,

| — | the call for the European Commission to include a chapter on quality of public investment, including at subnational level, in every annual report on Economic and Monetary Union (EMU) public finances; |
| --- | --- |

—

the call for the European Commission to include a chapter on quality of public investment, including at subnational level, in every annual report on Economic and Monetary Union (EMU) public finances;

| 16. | reiterates its request that the Commission assess the impact of the ESA 2010 rules on public investment capacity and safeguard the principle of non-discrimination between public and private investment, in accordance with Article 345 of the Treaty on the Functioning of the European Union; |
| --- | --- |

16.

reiterates its request that the Commission assess the impact of the ESA 2010 rules on public investment capacity and safeguard the principle of non-discrimination between public and private investment, in accordance with Article 345 of the Treaty on the Functioning of the European Union;

More effective involvement of local and regional authorities in economic governance

More effective involvement of local and regional authorities in economic governance

| 17. | draws the attention of the European Parliament, the Council and the Commission, as well as the Member States and local and regional authorities, to the monitoring report on the Europe 2020 Strategy that is drawn up annually by the CoR 2020 Monitoring Platform, and, more specifically, the comments relating to economic governance and the European Semester made in the 5th Monitoring Report, issued in October 2014 (4); |
| --- | --- |

17.

draws the attention of the European Parliament, the Council and the Commission, as well as the Member States and local and regional authorities, to the monitoring report on the Europe 2020 Strategy that is drawn up annually by the CoR 2020 Monitoring Platform, and, more specifically, the comments relating to economic governance and the European Semester made in the 5th Monitoring Report, issued in October 2014 (4);

4

| 18. | believes that, although there have been improvements, local and regional authorities are still not adequately involved or considered when it comes to economic policy coordination and that this poses a problem in terms of how representative, legitimate and comprehensive the national reform programmes and country-specific recommendations are. The Committee would therefore recommend that local and regional authorities be more closely involved in the framework of the European Semester, along the lines of the partnership principle governing the Structural Funds; |
| --- | --- |

18.

believes that, although there have been improvements, local and regional authorities are still not adequately involved or considered when it comes to economic policy coordination and that this poses a problem in terms of how representative, legitimate and comprehensive the national reform programmes and country-specific recommendations are. The Committee would therefore recommend that local and regional authorities be more closely involved in the framework of the European Semester, along the lines of the partnership principle governing the Structural Funds;

The social dimension of Economic and Monetary Union

The social dimension of Economic and Monetary Union

| 19. | reiterates its firm belief that, in accordance with Article 3 TEU, the credibility and legitimacy of EMU are based on the ability to prove that it helps to further social progress and that employment and social provisions are not seen as secondary to macroeconomic and budgetary concerns; |
| --- | --- |

19.

reiterates its firm belief that, in accordance with Article 3 TEU, the credibility and legitimacy of EMU are based on the ability to prove that it helps to further social progress and that employment and social provisions are not seen as secondary to macroeconomic and budgetary concerns;

| 20. | therefore calls on the Commission to incorporate the measures proposed in the 2012 Commission communication on strengthening the social dimension of EMU and the 2013 Social Investment Package into the follow up to the June 2015 Five Presidents’ Report on the future of EMU. While meeting the need to maintain the existence and co-existence of the various social models within EMU, this follow up should, for instance, consider incentives for reforms to accelerate achievement of the social objectives of the Europe 2020 Strategy and coordination between the automatic stabilisers at EMU level (5). |
| --- | --- |

20.

therefore calls on the Commission to incorporate the measures proposed in the 2012 Commission communication on strengthening the social dimension of EMU and the 2013 Social Investment Package into the follow up to the June 2015 Five Presidents’ Report on the future of EMU. While meeting the need to maintain the existence and co-existence of the various social models within EMU, this follow up should, for instance, consider incentives for reforms to accelerate achievement of the social objectives of the Europe 2020 Strategy and coordination between the automatic stabilisers at EMU level (5).

5

Brussels, 9 July 2015.

The President of the Committee of the Regions

Markku MARKKULA

---

(1)  See point 25 of the CoR opinion of 3 December 2014 on Promoting quality of public spending in matters subject to EU action, rapporteur: Catiuscia Marini (PES/IT), COR-2014-04885-00-00-AC-TRA.

1

Promoting quality of public spending in matters subject to EU action,

(2)  Sixth report on economic, social and territorial cohesion: investment for jobs and growth, COM(2014) 473.

2

Sixth report on economic, social and territorial cohesion: investment for jobs and growth

(3)  Opinion on Promoting quality of public spending in matters subject to EU action, COR-2014-04885 — BUDG-V-009 (OJ C 19, 21.1.2015, p. 4).

3

Promoting quality of public spending in matters subject to EU action

(4)  Committee of the Regions (2014), 5th CoR Monitoring Report on Europe 2020, October 2014, Ref: COR-2014-05553.

4

5th CoR Monitoring Report on Europe 2020

(5)  CoR opinion on The EU Social Investment Package, point 20 (ECOS-V-042, 9.10.2013).

5

The EU Social Investment Package

---