COMMUNICATION FROM THE COMMISSION ON STREAMLINING THE ANNUAL ECONOMIC AND EMPLOYMENT POLICY CO-ORDINATION CYCLES

COMMUNICATION FROM THE COMMISSION ON STREAMLINING THE ANNUAL ECONOMIC AND EMPLOYMENT POLICY CO-ORDINATION CYCLES

I - Background

1. Over the last few years, and in particular in the European Councils of Lisbon and Göteborg, the European Union has developed an economic, social and environmental strategy that is articulated around four objectives:

- realising as strong as possible economic growth, notably through an improvement in potential growth;

- progress towards full employment;

- advance the European social model so as to preserve social cohesion;

- sustainable development.

To ensure the effective implementation of this strategy and allow for the review of the results obtained, it is necessary that the Union can rely upon effective co-ordination mechanisms. To this end, the Community has elaborated and extended the framework, procedures and instruments for the purpose of co-ordinating economic and related policies. Especially during the second half of the 1990s, a number of processes and procedures were added or further developed. Besides the Broad Economic Policy Guidelines (BEPGs), the Treaty now provides for policy co-ordination via the Stability and Growth Pact and the European Employment Strategy. Policy co-ordination has also developed in several areas including through , the Cardiff Process of economic reform. In addition, social partners are involved through the Macroeconomic Dialogue under the Cologne Process. Moreover, the Lisbon European Council called for the application of a so-called open method of co-ordination which is designed to help Member States to progressively develop their own policies and help in spreading best practice and achieving greater convergence towards the main EU goals. It has been applied in several areas, including on social inclusion and pensions. Finally, several benchmarking processes have also been set up and various scoreboards have been developed.

2. However, as new elements have often been added on an ad hoc basis without necessarily taking the wider picture fully into account, the present framework has arguably become complex and more difficult to understand and explain. This situation is not conducive to the formulation and effective communication of EU policy guidance, which should be coherent both over time and across the various processes. In addition, it contributes to a situation in which the attention given to the formulation of policy guidance is not matched by that given to its implementation.

3. In 2000 and 2001, in Lisbon and Göteborg, the European Union made a decisive shift to a more strategic and medium-term approach to policy making when it set the policy agenda for the next decade. Since then, there has been a growing awareness of the need to streamline and synchronise the relevant policy co-ordination processes and orient them more decisively towards the medium- and longer-term. On several occasions, most recently on the occasion of its Spring meeting in Barcelona (March 2002), the European Council called for improvements. At Barcelona, it urged the Council and the Commission to streamline the relevant policy co-ordination processes, stating that the focus must be on action for implementation, rather than on the annual elaboration of guidelines. [1]

[1] See Part I, paragraph 49 of the Presidency Conclusions.

4. In response to this request, the Commission outlines below its main views on how a better streamlined policy co-ordination cycle can be achieved within the current Treaty framework, which will contribute to:

* Enhancing the efficiency of policy co-ordination, notably by securing a better follow-up of implementation;

* Improving coherence and complementarity between the various processes and instruments;

* Fostering a wider-shared commitment and "ownership"; including through a stronger involvement of the EP, the national Parliaments and a better consultation of social partners and civil society;

* Increasing the transparency and intelligibility of the policy co-ordination cycle and thereby its visibility and impact.

II - Suggestions for a better streamlined policy co-ordination cycle

5. Whilst preserving the autonomy of the Treaty-based co-ordination processes but with a view to achieving greater coherence, transparency and effectiveness in policy co-ordination, it is proposed to strengthen the focus on the medium-term, give greater prominence to implementation and its evaluation, and streamline existing processes around a few key points in the year. This will contribute to more stability and predictability in the policy direction and a sharper political focus on its delivery. The main building blocks of a better and more clearly articulated policy co-ordination cycle can briefly be described as follows:

(i) Preparation of the Spring European Council:

* The Commission would, in its Spring Report, highlight the main areas where further progress has to be made and the key policy orientations on which general guidance is required from the Spring European Council. The Spring Report would be complemented and presented together with the Implementation Package (including the Implementation Report on the BEPGs and the draft Joint Employment Report and the implementation report on the Internal Market Strategy). The Commission's various reports and scoreboards (including inter alia the Cardiff Report, the State aids, innovation and enterprise policy scoreboards) will feed into the Implementation Package and the Spring Report. This Commission input would assist different Council formations, as well as any other appropriate actor, in reviewing implementation in their specific policy areas.

(ii) The Spring European Council: The Spring European Council is a defining moment in the annual policy co-ordination cycle. It reviews implementation and, on that basis, gives general political orientations on the main policy priorities.

(iii) Commission proposals for new guidelines and recommendations: On the basis of the Spring European Council political orientations, the Commission would present its proposals for further action in the various policy areas together in a Guidelines Package (which would include the Commission drafts for general and country-specific policy recommendations as contained in the BEPGs; the EGs; and the annual employment recommendations to Member States). This Package, the first of which would be issued in April 2003, would, in principle, cover a three-year period, i.e. up to 2006. The guidelines would continue to be issued every year to take account of possible major new developments, but should otherwise remain stable until 2006, unless circumstances require otherwise. Consistent with the recommendations of the BEPGs and the outcome and conclusions of the Cardiff process, the Internal Market Strategy - which will accompany the Guidelines Package - would deal with internal market matters at Community level up to 2006, and would be adjusted in the intervening years only if necessary.

(iv) Adoption of new guidelines and recommendations: After, where appropriate, further preparation by the competent Council formations ahead of the June European Council and following the latter's consideration, the relevant Council formations would adopt the BEPGs, the EGs and the Employment Recommendations to Member States and/or endorse action plans (e.g. the Internal Market Strategy) in their competence areas.

(v) Concentration of implementation review in Quarter 4: A better streamlined review of implementation requires:

* Systematic information provision by Member States on the implementation of policies agreed at European level. In this context, there may be scope for rationalising and streamlining current national reporting requirements. Fewer and more comprehensive reports [2], allowing also for coverage of information on newly identified issues (thus avoiding the need to add new reports and procedures), might help in clarifying and ensuring the coherence of Member States' responses to policy recommendations issued by the Community; these reports should ideally be presented together in October at the latest. The National Employment Plans would be sent as a separate document around the same time.

[2] It might even be considered to provide the information required for multilateral surveillance in a single national report on economic policies.

* An implementation assessment by the Commission. On the basis of the available information (through reports, through bilateral contacts and through the results of various benchmarking exercises), the Commission services would assess implementation in the various relevant policy areas. The Commission will present the findings of its review in the form of an new Implementation Package together with the Commission's Spring Report in mid-January, marking the start of a new cycle.

6. The different steps outlined above are graphically illustrated in appendix 1. More generally, there would be an advantage in streamlining other related processes in order for them to provide a timely input into the preparation of the Implementation Package and the Commission's Spring Report. The Commission will also reflect in the coming months on how to streamline the open process of co-ordination in the Social Protection field - currently covering social inclusion and pensions - and how to link it to the new streamlined approach.

7. In keeping with this calendar, further improvements of the contents and effectiveness of policy co-ordination should be sought by putting more emphasis on the medium-term in framing policy orientations and by improving the coherence of the Guidelines Package.

8. Putting more emphasis on the medium-term in framing the basic economic and employment policy strategy would help to:

* Provide for stability in the policy guidelines and recommendations, thereby allowing Member States to frame credible policy strategies geared towards their fulfilment and so contribute to an effective follow-up, and enabling Council and Parliament to adopt the necessary actions that, by definition, may require a longer-term horizon;

* Avoid giving the impression that the policy strategy is incomplete and needs permanent re-definition;

* More clearly relate the policy strategy to the achievement of the strategic 2005 and 2010 objectives of the Lisbon Agenda;

* Shift the focus from defining policy strategies to implementing them; and

* Improve the visibility and impact of the strategy.

9. The enhanced focus on the medium-term should be reflected in the various guidelines and strategies.

10. The BEPGs would keep their annual character, but would, in principle, be fully reviewed only once every 3 years. The Commission, however, using its right of initiative, could diverge from this calendar and present a Recommendation for important changes or fully reviewed BEPGs also in intermediate years if it deems circumstances so warrant. The BEPGs would, while covering the full range of relevant economic policies and providing both general and country-specific policy recommendations, become more strategic in character by focussing to a greater extent on key policy issues. In the intermediate years, the Recommendation on the BEPGs could be more concise by concentrating on major policy adjustments that would seem necessary in view of the evolving economic situation and in view of the progress made on implementation, thus making a link to the BEPGs Implementation Report, the Commission's Spring Report and the subsequent Spring European Council conclusions.

11. Similar benefits would be obtained by strengthening the medium-term character of the Employment Guidelines. Thus, whilst maintaining annual proposals for Guidelines as requested under the Treaty, changes to the EGs would, if possible, be avoided in the intermediary years, while a more substantial review would be undertaken, in principle, once every 3 years, taking due account of the need for alignment of their timeframe to the deadline of 2010.

12. The Cardiff process of economic reform of product and capital markets would, as far as Internal Market Issues are concerned, concentrate on the analysis of a limited number of core topics in greater depth each year. This would contribute to enhancing the emphasis on the medium-term and would be more compatible with the medium-term perspective that the Internal Market Strategy (IMS) has had from when it was launched in 1999. While the Strategy adopted a five-year time frame, its proposed actions are reviewed and updated each year. The next phase of the Strategy is expected, however, to be linked more closely with the Lisbon Strategy. This could be achieved by defining an agenda for action to be implemented over the next 3 years, i.e. up to 2006, so that these measures, once implemented, can produce their full effect before the Lisbon deadline.

13. The coherence of the guidelines package can be improved by specifying more clearly the contents to be covered by the respective instruments, while maintaining the central role of the BEPGs for economic policy co-ordination. The BEPGs will continue to address macroeconomic policies and put the necessary emphasis on structural policies and on reforms aimed at promoting economic growth potential, employment and social cohesion, sustainable development, and the transition towards a knowledge-based economy. The Cardiff and Luxembourg processes would make it possible to deal with their respective subject matters in greater detail.

14. In this context, the EGs must, on the one hand, keep their wide policy scope reflecting the range of policies contributing to the employment objectives and the integrated nature of the EES and, on the other hand, their role as the main tool for defining the principles and modalities of policy co-ordination in the employment area, in full consistency with the BEPGs. Therefore, a streamlining between the BEPGs and the EGs would require that steps be taken to strengthen the complementary character of the BEPGs and the EGs by better differentiating between the 'broad' recommendations on employment in the BEPGs that would establish the general economic policy framework, and the more specific guidelines and recommendations under the scope of the policies covered by the EES. The proposed synchronisation of the start of the two processes by the simultaneous presentation by the Commission of its input for both instruments and their subsequent discussion in relevant bodies would be likely to contribute to such coherence.

15. Similarly, a streamlining between the BEPGs and the IMS would require that steps be taken to better differentiate between the 'broad' recommendations on product and capital markets in the BEPGs and the specific target actions at Community level in the IMS. The update of the IMS would accompany that of the BEPGs, presenting specific policy targets related to the Internal Market.

16. The main implications of these changes are set out in Appendix 2.

17. To draw maximum benefit of the streamlining of current procedures and in order to preserve the coherence of the current policy co-ordination framework in the future, any new processes to be established must demonstrate that: i) the issues raised cannot be dealt with in the context of existing procedures; and ii) the new processes bring real value-added.

III - Timing issues

18. As regards the timing for the start of streamlining and related suggestions for improvements, the Commission considers that:

* To give a credible and timely follow up to the Barcelona European Council conclusions, the streamlining should be implemented already in the run up to the Spring 2003 European Council and in time for the preparation of the next BEPGs, EGs, and the Internal Market Strategy. Following their adoption in June 2003 for a period of - in principle - 3 years, the first full application of the proposed new arrangements for reviewing implementation should take place in the Autumn of 2003. It would also allow the Parliament to adjust to the new cycle before its next election in 2004;

* Specific timing arrangements for the implementation of the streamlined and synchronised approach should take into account the requirements for appropriate involvement of all institutions and partners concerned, notably the Council, the European Parliament and the Social Partners.

19. However, as a transitional arrangement, the draft Joint Employment Report will be adopted by the Commission in the Autumn of 2002, instead of January 2003, as would follow from the general approach retained in this Communication. In January the Commission will present its Spring report together with the Implementation Report on the BEPGs and a Communication outlining the approach for the revision of the European Employment Strategy.

20. Enlargement makes it all the more necessary to have streamlined procedures in place (as difficulties encountered at present will only become bigger if nothing is done).

Appendix 1: Flow chart of the streamlined policy co-ordination cycle

>REFERENCE TO A GRAPHIC>

Appendix 2: Main implications of the proposed changes

1. The main implications of the proposed changes are outlined below. A distinction is made between implications for the different procedures and for the different institutions involved.

Implications for the procedures

2. As regards the BEPGs, the streamlining would have the following implications:

* Commission Recommendation: In principle, the Commission would table recommendations for fully-fledged BEPGs only once every three years (thus in year 't', 't+3', etc.). In the intermediate years (year 't+1', 't+2'), the Recommendation on the BEPGs could be more concise by focusing only on major adjustments. [3]

[3] The Commission does, however, fully reserve its right of initiative and would come forward with a Recommendation for fully-fledged BEPGs also in intermediary years if circumstances so warrant.

* The Implementation Report: The Commission's Implementation Report on the BEPGs would be advanced by 1-1,5 months so that it could be presented in mid-January as part of the Implementation Package together with the Commission's Spring Report. In the years following the adoption of fully-fledged guidelines, the review of implementation would be comparatively light and focus more on the Member States policy intentions in response to these guidelines, than on actual measures taken.

3. As regards the EGs and the Luxembourg process, the streamlining would have the following implications:

* The current Employment Package would be split up: The draft Joint Employment Report (JER) would be presented as part of the Implementation Package together with the Commission's Spring Report.

* Employment Guidelines and Employment Recommendations: The Commission's proposal for the Employment Guidelines and the related recommendations would be submitted after the Spring European Council together with the Recommendation for the BEPGs as part of the Guidelines Package.

* Review of implementation: Member States' National Action Plans (NAPs) should be provided in early October at the latest. The Commission's draft Joint Employment Report would be presented by mid-January as part of the Implementation Package together with the Commission's Spring Report.

4. The Cardiff process for economic reform is at this time undergoing an evaluation and review which will modify the current cycle. The joint consideration of the streamlining and the new arrangements under discussion would, in principle, have the following implications:

* Commission Cardiff report: On the basis of the information available at this point, the implications of these new arrangements for Commission reporting will be minor since the timetable of the process has already been changed and the Commission report should be made public early in December.

* Cardiff national reports: In the context of a more streamlined reporting system, the "National reports on structural reform" by the Member States could be integrated, whilst keeping an adequate focus on microeconomic reporting, into a broader annual report on Member States' economic policies. These reports would have to be delivered at the latest in October in order to allow sufficient time for the preparation of the Implementation Package. The national reports would have to be more extensive in the years preceding a major revision of the BEPGs (i.e. every three years in 't-1', 't+2'). In order to implement the new arrangements for the Cardiff process, Member States may be required to complement their national reports with replies to specific questionnaires addressing the limited number of Internal Market topics agreed by the Council each year.

5. As regards the Internal Market Strategy (IMS) the streamlining would have the following implications:

* For the review of progress on implementing the Internal market: The presentation of the implementation report on the Internal Market Strategy should be adjusted so as to coincide with the presentation of the Spring Report and the Implementation Package.

* For the formulation of and adjustments in Internal Market Strategy: The Internal Market Strategy would adopt a clearer medium term-perspective (initially covering the period 2003-2006 as the fully-fledged BEPGs) in line with the Lisbon Strategy. While the Commission would reserve the right to review target actions in intermediate years to take account of new developments in conjunction with adjustments made in the BEPGs, the purpose is to set a multiannual agenda for action related to the Internal Market. The update of the IMS agenda would accompany that of the BEPGs, presenting specific annual policy targets related to the Internal Market.

6. As regards other related procedures, the streamlining would have the following implications:

* Scoreboards: Where necessary, the timing of the publication of the various relevant scoreboards (State aid, innovation, enterprise policy, etc.) should be adapted so as to provide timely input for the implementation review.

* Stability and Growth Pact: The stability and convergence programme updates should be submitted sufficiently early in the autumn so that they can be taken into account in the implementation review. Similarly, the Council Opinions on the updates should be adopted in the first few months of the year (at the latest) so as to provide timely input for the formulation of a new set of BEPGs.

* Implications for other processes which are still at an early stage of development, e.g. in the Social Protection area, will need to be further examined with the aim to optimise their contribution to the Lisbon strategy follow-up.

Implications for the institutions

7. As regards the Commission, the streamlining would have the following practical implications:

* The change in timing of several (components of) procedures, notably the concentration of implementation review in Q4 with release of the various Implementation Reports in mid-January together with the Spring Report and the presentation of all (medium-term) policy orientations after the Spring European Council, would require similar adjustments in the work organisation of the Commission and its services, particularly during years ('t', t+3) when guidelines or action plans are subject to a fundamental review. The advancement of the implementation review to Q4 would provide a solid basis for the preparation of the Commission's Spring Report, in which progress would be summarised and main obstacles to further progress would be highlighted.

* The shift towards a medium-term focus would provide for greater stability and predictability. Parallel management of important files, particularly every third year, would imply a considerable workload for the Commission and its most directly concerned services, but would also be likely to contribute to improving the coherence of the work done in relation to these files. During intermediate years, resources would be freed up to contribute to implementation.

* In line with a greater emphasis on implementation, the Commission services may have to invest more time in fact finding and discussions with Member States prior to the finalisation of the Implementation Reports, especially as regards economic and structural policies.

8. As regards the Council, the streamlining would have the following implications.

* The change in timing of several (components of) procedures would require similar adjustments in the work organisation of the Council and its preparatory Committees. The Council would adopt the draft JER before the Spring European Council as part of its contribution.

* There would be a need for co-ordination at the level of the Council and the preparatory committees so as to ensure an effective and streamlined follow-up to implementation reports and guidelines presented by the Commission. In this respect, it is important to effect i) an appropriate distribution of work and involvement of the various Council formations (and their supporting Committees) and ii) an effective communication to the public of the different steps taken in the policy co-ordination cycle, thereby enhancing understanding of how the different elements fit together as part of the overall policy co-ordination cycle.

9. As regards the Member States, the streamlining would have the following implications.

* Member States would mostly be affected through the possible changes in the timing, number and character of the reports to the Community level on their policies. An effective streamlining at Community level and a more systematic and comprehensive reporting system may entail a need for greater co-ordination also within the Member States, but should at the same time yield benefits by reducing duplication of work, insofar as it currently arises from overlaps between the different processes.

- Streamlining would on the other hand imply changes in timing; the different (components of) reports should be ready at about the same time in October at the latest. [4]

[4] In some cases (e.g. the National Action Plans for Employment) it would mean that reports can be submitted at a later stage than is currently the case and can therefore better take account of possible new measures decided upon by governments in the context of their budget proposals.

- There might be possibilities for reducing the number and frequency of reports. It might even be considered to provide the information required for multilateral surveillance in a single national report on economic policies. The National Employment Plans would continue to be sent separately.

- Finally, the character of the reports may change from year to year; in some years, more concise reports may be sufficient. The precise nature of the reporting would have to be further discussed. It is conceivable that in the case of the BEPGs, the reporting to be done by Member States may change depending on the year; following the adoption of fully-reviewed BEPGs or EGs, Member States reports could concentrate on prospective policy action in response to them, whereas in the subsequent years the emphasis would be more on actual implementation. Also, there may not be a need to report extensively on each policy area every year. The revision of the Cardiff process envisages, for example, that certain policy areas would be selected only every couple of years to allow some time for new measures to produce effects and to reduce the overall workload.

* Member States could invest more in communicating the different steps taken in the policy co-ordination cycle more effectively to their national parliaments and citizens so as to enhance understanding of how the different elements fit together as part of the overall policy co-ordination cycle and to contribute to greater involvement. A streamlining and simplification of procedures would facilitate such communication.

10. As regards the European Parliament, the streamlining would have the following implications.

* The European Parliament (EP) would have more time to consider the effective implementation of guidelines in preparation for their possible contribution to the Spring European Council.

* A different timing of discussions in the EP might also help to facilitate its closer involvement following the presentation by the Commission of the Guidelines Package and prior to the preparation by the competent Council formations for the June European Council. Depending upon this, there might be greater scope for involving the EP more closely in the elaboration of the BEPGs through informal consultations. This could also be the case with the IMS. Consultations of the EP on the EGs would continue to take place as provided for in the Treaty.

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