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
Date: 2012-05-30
Institutions: European Commission
Subjects: Euro Group (euro area), banking system, budgetary equilibrium, economic integration, economic reform, economic stabilisation, political cooperation, structural policy

EUROPEAN COMMISSION 

Brussels, 30.5.2012  
COM(2012) 301 final 

Recommendation for aCOUNCIL RECOMMENDATION 

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

{SWD(2012) 301 final} 

EN 

   EN 

 
 
 
  
 
 
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 Commission1, 

Having regard to the resolutions of the European Parliament2 

Having regard to the conclusions of the European Council, 

After consulting the Economic and Financial Committee, 

Whereas: 

(1) 

(2) 

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.  

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 

1 
2 

COM(2012)301 
P7_TA(2012)0048 and P7_TA(2012)0047 

EN 

2 

   EN 

                                                 
(3) 

(4) 

(5) 

(6) 

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.  

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.  

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 
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.  

to  enhance  confidence 

is  crucial 

in 

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.  

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 

EN 

3 

   EN 

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 union3. 

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) 

(2) 

(3) 

(4) 

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. 

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, 
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. 

implementation  of 

including 

the 

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. 

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 

3 

See section 2.1 of COM (2012) 299 

EN 

4 

   EN 

                                                 
(5) 

(6) 

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.  

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. 

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 

EN 

5 

   EN