# EUR-Lex - 52012DC0301 - EN

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# 52012DC0301

**Recommendation for a COUNCIL RECOMMENDATION on the implementation of the broad guidelines for the economic policies of the Member States whose currency is the euro /* COM/2012/0301 final */**

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Recommendation for a

COUNCIL RECOMMENDATION

on the implementation of the broad
guidelines for the economic policies of the Member States whose currency is the
euro

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the
Functioning of the European Union, and in particular Article 136 in combination
with Article 121(2) thereof,

Having regard to the recommendation of the
European Commission[1],

Having regard to the resolutions of the
European Parliament[2]

Having regard to the conclusions of the European
Council,

After consulting the Economic and Financial
Committee,

Whereas:

(1)       Since its creation, the
Eurogroup has played a pivotal role and has a special responsibility in the economic
governance of the euro area. The economic crisis clearly exposed the close
interrelations in the euro area, underscoring the need for a coherent aggregate
policy stance which reflects the strong spillovers between countries whose
currency is the euro, for effective arrangements for policy coordination to
swiftly respond to changes in the economic environment.

(2)       The Council has issued
country-specific recommendations to each of the Member States whose currency is
the euro. These recommendations address economic challenges at the national
level and at the same time are a central element in determining stability and
growth in the euro area as a whole. The Member States whose currency is the
euro have also committed themselves to a set of far-reaching additional policy
reforms under the Euro Plus Pact, aiming to foster competitiveness, promote
employment, contribute to the sustainability of public finances and reinforce
financial stability. On 2 March 2012, the Member States whose currency is the
euro and eight other Member States signed a Treaty on Stability, Coordination
and Governance in the Economic and Monetary Union in which they agreed to ensure that all
major economic policy reforms that they plan to undertake will be discussed
ex-ante and, where appropriate, coordinated among themselves. Ex ante
coordination in the euro area context, both via the submission of draft budget
plans and the discussion of major economic policy reform plans, will contribute
to taking into account the spillover effects from national actions on the euro
area as a whole.

(3)       The existence of
well-designed budgetary frameworks strengthening domestic fiscal governance is
a key element in the sound management of public finances, and contributes to
the sustainability of public finances in the euro area as a whole. Euro area
Heads of State or Government committed in July and October 2011 to introduce
national fiscal frameworks as foreseen in the Directive on national budgetary
frameworks already by the end of 2012 ahead of the timetable foreseen in the
Directive, and to go beyond the requirements contained therein. Moreover, on 2
March 2012, the euro area Member States, together with eight non-euro area
Member States, by signing the Treaty on Stability, Coordination and Governance
in the Economic and Monetary Union, committed themselves to a further
strengthening of their national fiscal governance, notably by introducing binding
rules for the budgetary position of the government to reach the medium-term
objective.

(4)       The pursuit of fiscal
consolidation is a central element in the strategy to overcome the crisis in
the euro area. The EU fiscal framework allows for differentiation in the pace
of consolidation between Member States according to their fiscal space and
macroeconomic conditions. The focus of the Stability and Growth Pact and the
Treaty on Stability, Coordination and Governance in the Economic and Monetary
Union is on structural balances and hence it allows taking into account the
effects of the cycle and of one-off measures on headline budget balances. The
assessment of effective action in response to Council recommendations on the
correction of the excessive deficit positions is carried out in structural
terms. An appropriate composition of consolidation is crucial to enhance
confidence in the permanent nature of consolidation in the euro area and to
limit its negative short-term impact on growth. Growth-friendly expenditure, in
particular investment expenditure, needs to be prioritised; in several euro
area Member States productive investment projects could be identified where
both the private and the social returns would exceed the currently low interest
rates. Reforms of long-term entitlements, notably health, are urgently needed,
to underpin the long-term sustainability of public finances. Appropriate tax
policy, such as shifting the tax burden away from labour, broadening the tax
bases and more effective action to combat tax evasion could contribute to
consolidation while increasing competitiveness and creating better conditions
for growth.

(5)       Stability and the good functioning
of the financial system are pre-conditions for averting a "lost-decade
scenario" of slow growth in the euro area and for enhancing investors'
confidence. As further deleveraging of bank balance sheets is necessary, it is
important to ensure that it proceeds in an orderly manner and is consistent
with maintaining an adequate flow of credit to the real economy. In order to
counter the emerging trend of financial fragmentation, further progress is
necessary with integration in supervisory structures and practices as well as
in cross-border crisis management.

(6)       An orderly unwinding of
intra-euro area macroeconomic imbalances is crucial for sustainable growth and
stability in the euro area. A process of reduction in the imbalances has
started, but needs to be pursued steadfastly. The urgency of actions to correct
the imbalances is greater in deficit countries, where reforms are necessary to
improve competitiveness and facilitate resources reallocation towards tradable
sectors. At the same time, surplus countries can contribute to rebalancing by
removing unnecessary regulatory and other constraints on domestic demand,
non-tradable activities and on investment opportunities.

(7)       Recognising the
interdependence between the economies of those Member States whose currency is
the euro and the benefits that stability in this monetary union can bring to
its members and the wider EU is a prerequisite for the further development of
economic union. Looking ahead the Member States whose currency is the euro will
need to deepen their integration to attain full economic and monetary union[3].

HEREBY RECOMMENDS that Member States
whose currency is the euro should take action, individually and collectively,
without prejudice to the competences of the Council as regards the coordination
of economic policies of the Member States, but in particular in the context of
economic policy coordination in the framework of the Eurogroup, within the
period 2012-2013 to:

(1)
Strengthen the working methods of the Eurogroup
to allow it to take responsibility for the aggregate policy stance in the euro
area, rapidly responding to changes in the economic environment, and to lead
the coordination of economic policy in the context of the strengthened
surveillance framework which applies to the Member States whose currency is the
euro.

(2)
Engage in genuine policy cooperation in the
Eurogroup by sharing information and discussing draft budgets and the plans of
major reforms with potential spillover effects on the euro area. Ensure that
such reforms are undertaken that are necessary for a stable and robust euro
area, including the implementation of the recommendations which the Council has
addressed to individual Member States whose currency is the euro and which, in
addition to addressing challenges at national level, have an impact on the euro
area as a whole.

(3)
Strengthen fiscal discipline and fiscal
institutions at both national and sub-national levels, leading to enhanced
market confidence in the medium- and long-term sustainability of public
finances in the euro area. Following the agreement by the euro area Heads of
State or Government in July and October 2011 and on 2 March 2012, advance the
transposition of the Directive on national budgetary frameworks to the end of
2012 and strengthen fiscal governance further, notably by introducing in the
national legislation of all euro area Member States the rules for balanced
budget in structural terms and the automatic correction mechanisms.

(4)
Ensure a coherent aggregate fiscal stance in the
euro area by pursuing fiscal consolidation as set out in Council
recommendations and decisions, in line with the
rules of the Stability and Growth Pact, which account for country-specific macro-financial
situation. Member States affected by significant and potentially rising risk
premia should limit deviations from the nominal balance targets even against
worse-than-expected macroeconomic conditions; other Member States should let
the automatic stabilizers play along the adjustment path assessed in structural terms and stand ready to review the pace
of consolidation should macroeconomic conditions deteriorate further.
Composition of government expenditure and revenues should reflect the growth
impact of spending items and revenue sources. In particular, all the available
budgetary margins should be used to foster public investment in the euro area,
including by taking into account cross-country differences in the cost of
funding.

(5)
Take action to improve the functioning and
stability of the financial system in the euro area. Accelerate the steps
towards a more integrated financial architecture, comprising banking
supervision and cross-border crisis resolution.

(6)
Implement structural reforms, which – together
with the differentiated fiscal stance – would promote an orderly unwinding of
intra-euro area macroeconomic imbalances, including action at national level
which reflects the country-specific situation and takes account of the Council
recommendations to individual euro area Member States.

Done at Brussels,

For
the Council

The
President

[1]               COM(2012)301

[2]               P7_TA(2012)0048 and P7_TA(2012)0047

[3]               See section 2.1 of COM (2012) 299