COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL AND THE EUROPEAN CENTRAL BANK On steps towards Completing Economic and Monetary Union
Date: 2015-10-21
Institutions: European Commission, Secretariat-General
Subjects: banking, coordination of EMU policies, economic disparity, economic policy, economic situation, employment policy, euro area, first stage of EMU, fiscal policy, social policy

EN 

   EN 

   EUROPEAN COMMISSION  Brussels, 21.10.2015  COM(2015) 600 final   COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL AND THE EUROPEAN CENTRAL BANK  On steps towards Completing Economic and Monetary Union   
 
 
1.  INTRODUCTION  

The  architecture  of  the  Economic  and  Monetary  Union  (EMU)  has  been  significantly 
strengthened  over  the  past  years  to  enhance  economic  governance  and  to  achieve  financial 
stability.  Nevertheless,  the  EMU's  resilience  needs  to  be  further  reinforced  in  order  to  re-
launch a process of upward convergence, both between Member States and within societies, 
with increasing productivity, job creation and social fairness at its core.  

In  June  2015,  the  President  of  the  European  Commission,  in  close  cooperation  with  the 
President of the Euro Summit, the President of the Eurogroup, the President of the European 
Central Bank and the President of the European Parliament presented a report on an ambitious 
yet  pragmatic  roadmap  for  completing  the  EMU1.  This  Five  Presidents'  Report  makes  the 
point that progress is necessary on four fronts in parallel. Firstly, towards a genuine Economic 
Union that ensures each economy has the structural features to prosper within the Monetary 
Union.  Secondly,  towards  a  Financial  Union  that  guarantees  the  integrity  of  the  currency 
across the Monetary Union by limiting  risk to financial stability and increasing risk-sharing 
with the private sector. Thirdly, towards a Fiscal Union that delivers both fiscal sustainability 
and fiscal stabilisation. And finally, towards a Political Union that provides the foundation for 
all  of  the  above  through  genuine  democratic  accountability,  legitimacy  and  institutional 
strengthening. 

The Five Presidents also agreed on a roadmap2 for implementation that should consolidate the 
euro area by early 2017 (Stage 1 – "deepening by doing"). In this first stage, which started on 
1 July 20153, action would build on existing instruments, also by making the best possible use 
of the existing Treaties. Then, on the basis of benchmarks for a renewed upward convergence 
of  the  euro  area  economies,  more  fundamental  reforms  should  be  undertaken,  moving  to  a 
medium-  to  long-term  vision  for  new  growth  perspectives  (Stage  2  –  "completing  EMU"). 
Overall, translating the Five Presidents' report into action requires a shared sense of purpose 
among  all  euro  area  Member  States  and  EU  institutions.  The  actions  set  out  in  this 
Communication apply to euro area Member States, but the process towards a deeper EMU is 
open to all EU countries. At the same time, the Commission will make sure that no distortions 
occur in the single market. 

This Communication and its accompanying proposals take forward key elements of Stage 1 of 
the  process  to  deepen  EMU.  The  package  of  measures  includes  a  revised  approach  to  the 
European Semester; an improved toolbox of economic governance, including the introduction 
of national Competitiveness Boards and an advisory European Fiscal Board; a more unified 
representation  of  the  euro  area  in  international  organisations,  notably  the  International 
Monetary  Fund;  and  steps  towards  a  Financial  Union,  notably  via  a  European  Deposit 
Insurance Scheme. These measures will be complemented by steps taken with the European 

1  Completing  Europe's  Economic  and  Monetary  Union,  Report  by  Jean-Claude  Juncker,  in  close  cooperation 
with Donald Tusk, Jeroen Dijsselbloem, Mario Draghi and Martin Schulz, 22 June 2015. 
2 See Annex 1 of the Report. 
3 http://europa.eu/rapid/press-release_IP-15-5294_en.htm.  

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Parliament  to  improve  democratic  accountability  of  the  European  economic  governance 
system. 

2.  A REVAMPED EUROPEAN SEMESTER  

Economic  policy  coordination  in  the  EMU  has  been  significantly  bolstered  during  the 
economic  and  financial  crisis.  In  order  to  overcome  pre-crisis  imbalances,  structural 
weaknesses  and  the  legacy  of  the  crisis,  and  to  boost  investment  and  rebuild  medium-term 
growth potential, these common rules, procedures and institutions at EU level play a central 
role.  

The  European  Semester,  the  annual  cycle  for  the  coordination  of  economic  policies  at  EU 
level introduced in 2011, has become an important vehicle for delivering reforms at national 
and  EU  level.  Yet,  Member  States  should  make  more  progress  on  implementing  country-
specific recommendations, given that implementation has so far been uneven and often only 
limited.  

Over the years, the process has been continuously improved, to capitalise on its strengths and 
to  address  its  weaknesses.  Most  recently,  the  new  Commission  has  used  its  first  European 
Semester  in  2015  to  substantially  streamline  the  exercise.  The  publication  of  the  Country 
Reports already in February created more space for genuine dialogue with the Member States, 
allowing  for  deeper  debate  at  bilateral  and  multilateral  level,  as  well  as  with  other 
stakeholders.  This  earlier  timing  also  requires  adapting  the  role  of  National  Reform 
Programmes  which  should  become  an  instrument  for  Member  States  to  respond  to  the 
Commission  analysis  by  presenting  forward-looking  policy  initiatives.  More  time  for 
reflection and debate was also created by the earlier publication of the Commission proposals 
for  country-specific  recommendations  in  May.  Here,  the  Commission  introduced  greater 
focus by significantly decreasing the number of recommendations, only covering key priority 
issues  of  macro-economic  and  social  relevance  that  require  Member  States'  attention  in  the 
following  twelve  to  eighteen  months.  While  this  focus  must  be  maintained,  the  Country 
Reports  will  continue  to  take  a  more  holistic  approach,  covering  a  broader  range  of  topics 
with economic relevance for the Member States. 

The stability and implementation of this improved structure is key to reaping the full benefits 
in  the  coming  period.  At  the  same  time,  and  building  on  these  developments,  some  further 
adjustments  can  bring  additional  benefits.  This  notably  includes  better  integrating  the  euro 
area  and  national  dimensions,  a  stronger  focus  on  employment  and  social  performance, 
promoting  convergence  by  benchmarking  and  pursuing  best  practices,  and  the  support  to 
reforms  from  European  Structural  and  Investment  Funds  and  technical  assistance.  Table  1 
provides a graphical overview of the proposed 2016 European Semester.  

2.1. Better integrating the euro area and national dimensions  

Given the deeper interdependence of euro area countries and the higher potential for spill-over 
effects among countries which share the single currency, enhanced coordination and stronger 

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surveillance of the budgetary processes and economic policies of all euro area Member States 
is necessary. The lesson learned from the crisis is twofold: first, inadequate national fiscal and 
economic  policies  and  financial  supervision  can  cause  huge  economic  and  social  hardship; 
second,  the  euro  area  as  a  whole  is  not  immune  to  the  risks  of  large  and  destabilising 
economic and financial shocks. Hence, while sound national policies would go a long way to 
reduce the chances of a crisis, there is also a case to monitor and analyse closely the aggregate 
fiscal, economic and social situation of the euro area as a whole, and consider this analysis in 
the formulation of national policies. 

Already now, the European Semester includes an overall euro area dimension, in particular in 
the annual assessment of Draft Budgetary Plans of euro area Member States and the resulting 
overall  fiscal  stance  in  the  euro  area,  as  well  as  in  the  euro  area  recommendations.  The 
process  is  about  setting  priorities  together  and  acting  on  them  with  a  euro  area  perspective. 
However, this process is still based on a strong country-by-country approach, and only takes 
into  account  the  overall  euro  area  dimension  in  an  indirect  way.  The  European  Semester 
should be structured so that discussions and recommendations about the euro area take place 
first, ahead of country-specific discussions, so that common challenges are fully reflected in 
country-specific actions. 

The  Commission  will  therefore,  as  part  of  its  Annual  Growth  Survey  to  be  published  in 
November, put specific focus on the key fiscal, economic, social and financial priorities for 
the  euro  area  as  a  whole.  In  particular,  the  Commission  calls  for  a  specific  Eurogroup 
discussion on the euro area fiscal stance in the context of its assessment of Draft Budgetary 
Plans. This may also require bringing the publication of the recommendation for the euro area 
forward.  

Discussions on euro area priorities should take place within the Council and the Eurogroup, as 
well as with the European Parliament. The ensuing common understanding will then provide 
orientations  for  the  content  of  National  Reform  and  Stability  Programmes  of  euro  area 
Member States in April and the respective country-specific recommendations in May.  

2.2. A stronger focus on employment and social performance 

The  Commission  has  already  taken  steps  to  enhance  the  focus  on  employment  and  social 
issues  in  the  context  of  the  European  Semester  and  the  process  of  deepening  of  EMU.  The 
2015  Country  Reports  discussed  employment  and  social  developments  in  detail.  Country-
specific recommendations in these fields were addressed to most Member States.  

Employment  and  social  aspects  are  being  further  emphasised  also  in  the  Macroeconomic 
Imbalances  Procedure.  The  Commission  proposed  earlier  in  2015  to  add  three  indicators 
(activity  rate,  youth  unemployment,  long-term  unemployment)  to  the  existing  11  headline 
indicators  of  the  Macroeconomic  Imbalances  Procedure  scoreboard.  This  would  serve  the 
purpose  of  qualifying  the  social  and  employment  context  in  which  the  adjustment  is  taking 

4 

 
place,  ultimately  feeding  through  into  better  policy  design.  The  Commission  is  planning  to 
use the extended list of headline indicators as of the 2016 Alert Mechanism Report. 

Greater  attention  is  also  given  to  the  social  fairness  of  new  macroeconomic  adjustment 
programmes  to  ensure  that  the  adjustment  is  spread  equitably  and  to  protect  the  most 
vulnerable in society. The Commission prepared for the first time a social impact assessment 
for the Memorandum of Understanding for Greece.4 It intends to continue this practice in case 
of any future stability support programme.  

A  number  of  further  steps  should  be  taken  to  achieve  stronger  focus  on  Member  States' 
employment  and  social  performance.  Member  States  should  pay  greater  attention  to  the 
contribution  of  national  social  partners,  in  particular  to  strengthen  ownership  of  reform 
efforts. To this end, the Commission encourages stronger involvement of social partners in the 
elaboration of National Reform Programmes. In addition, Commission representations in the 
Member  States  will  consult  national  social  partners  at  pre-defined  key  milestones  of  the 
Semester. These steps would be complemented by strengthened dialogue with social partners 
during  European  Semester  missions.  Moreover,  the involvement  of  EU-level  social  partners 
will  be  continued  and  possibly  enhanced,  for  instance  through  a  renewed  Tripartite  Social 
Summit  and  Macroeconomic  Dialogue,  to  strengthen  their  contributions  to  the  Semester 
process. 

Convergence  towards  best  practices  in  the  employment  and  social  policy  field  should 
contribute to a better functioning and legitimacy of the EMU project. In the short term, such 
upward  convergence  could  be  achieved  through  the  development  of  common  benchmarks 
along the components of the 'flexicurity' concept, such as flexible and reliable labour contracts 
that  avoid  a  two-tier  labour  market,  comprehensive  lifelong  learning  strategies,  effective 
policies  to  help  the  unemployed  re-enter  the  labour  market,  modern  and  inclusive  social 
protection  and  education  systems  and  enabling  labour  taxation.  The  Commission  also 
confirmed its intention to put forward a European pillar of social rights, which would build on 
the existing "acquis" and serve as a compass for the overall convergence process.  

2.3. Promoting convergence by benchmarking and pursuing best practices  

The  Five  Presidents'  report  emphasises  the  use  of  benchmarking  and  cross-examining 
performance in order to achieve convergence and reach similarly resilient economic structures 
throughout the euro area. Cross-examination aims to identify underperformance and support 
convergence  towards  best  performers  in  areas  of  labour  markets,  competitiveness,  business 
environment  and  public  administrations,  as  well  as  certain  aspects  of  tax  policy. 
Benchmarking can contribute to enhancing ownership of the Member States' structural reform 
agendas and foster their implementation. 

See 

4 
document 
assessment_social_impact_en.pdf.  

at: 

http://ec.europa.eu/economy_finance/assistance_eu_ms/greek_loan_facility/pdf/ 

5 

 
                                                            
As the ongoing  benchmarking exercises in the Eurogroup (e.g. on the tax wedge on labour) 
have shown, benchmarking, if appropriately used, can be a truly powerful lever for action. In 
particular,  benchmark  indicators  need  to  meet  two  requirements.  First,  they  need  to  closely 
relate  to  the  policy  levers,  such  that  they  can  lead  to  actual  and  meaningful  policy 
implications.  Second,  there  needs  to  be  robust  evidence  and  enough  consensus  that  they 
contribute  significantly  to  higher  level  objectives  such  as  jobs,  growth,  competitiveness, 
social inclusion and fairness or financial stability.5  

The  availability  of  such  indicators,  their  statistical  reliability,  complexity  and  the  extent  to 
which they capture the full reality can vary significantly by policy area. As a consequence, the 
implementation of the benchmarking exercise should leave room for tailor-made adjustments 
by policy area. Furthermore, benchmarking needs to be complemented by economic analysis, 
which  allows  for  reflection  on  potential  trade-offs  across  policy  areas  and  for  in-depth 
evaluation of policy impacts. 

Starting  with  the  2016  European  Semester,  the  Commission  will  progressively  suggest 
benchmarks and cross-examination exercises across policy or thematic areas. These will feed 
into debates in the appropriate Council formations and the Eurogroup, with a view to fostering 
a common understanding of challenges and policy responses.  

The outcome of the discussions and evaluations will inform the European Semester and will 
pave the way to strengthening convergence of policies also in view of Stage 2. 

2.4. More focused support to reforms through EU funds and technical assistance  

To support structural reforms in line with the common economic priorities set at EU level, the 
Commission will seek to enhance the use of the European Structural and Investment Funds in 
support  of  key  priorities  highlighted  in  the  country-specific  recommendations,  including 
through  the  use  of  the  measures  linking  effectiveness  of  these  Funds  to  sound  economic 
governance.6 The new legal framework requires that programmes co-financed by ESI Funds 
address  all  relevant  country-specific  recommendations.  The  Commission  will  monitor  and 
report  progress  towards  the  agreed  objectives  by  2017.  The  reform  of  Cohesion  Policy  in 
2013  has  introduced  the  principle  of  so-called  macroeconomic  conditionality  to  all  five 
European  Structural  and  Investment  Funds.  This  is  part  of  the  broader  effort  to  ensure  that 

5 Examples of such meaningful indicators include the market entry and exit of firms, unemployment rates (e.g. 
youth  and  long-term  unemployment)  and  educational  attainment.  These  have  been  shown  to  be  related  to 
economic growth, productivity, innovation, employment and fairness. At the same time, they point to concrete 
policy  levers  that  should  be  considered  to  improve  performance.  These  include,  for  the  mentioned  examples, 
actions that impact on the ease of doing business, measures impacting on labour demand and supply such as the 
activation component of unemployment benefits and the labour tax wedge, and improving access to education.  
6 Article 23 of Regulation (EU) No 1303/2013 of the European Parliament and of the Council of 17 December 
2013 laying down common provisions on the European Regional Development Fund, the European Social Fund, 
the  Cohesion  Fund,  the  European  Agricultural  Fund  for  Rural  Development  and  the  European  Maritime  and 
Fisheries Fund and laying down general provisions on the European Regional Development Fund, the European 
Social  Fund,  the  Cohesion  Fund  and  the  European  Maritime  and  Fisheries  Fund  and  repealing  Council 
Regulation (EC) No 1083/2006. 

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European Structural and Investment Funds are used to support reforms identified to be of key 
importance for social and economic performance in the Member States, and to ensure that the 
effectiveness of the European Structural and Investment Funds is not undermined by unsound 
macroeconomic policies.7 

At  the  same  time,  reform  implementation  will  be  supported  through  other  EU  funding 
programmes in their policy fields and the progressive roll-out of technical assistance offers by 
the  Commission's  Structural  Reform  Support  Service.  The  Commission  has  established  this 
Service in order to make technical support available upon request to all Member States for the 
preparation  and  effective  implementation  of  reforms  in  the  context  of  the  economic 
governance  processes  (notably  the  implementation  of  country-specific  recommendations, 
actions  under  the  Macroeconomic  Imbalances  Procedure,  or  reforms  under  stability  support 
programmes), including through support for the efficient and effective use of EU Funds.  

. 

3.  IMPROVING THE TOOLBOX OF ECONOMIC GOVERNANCE  

In  the  wake  of  the  economic  and  financial  crisis,  the  economic  governance  framework  has 
been  considerably  strengthened  with  the  introduction  of  the  Six-Pack,  Two-Pack  and  the 
Treaty  on  Stability,  Coordination  and  Governance  in  the  Economic  and  Monetary  Union 
(TSCG)8.  The  reinforced  fiscal  rules  as  well  as  the  recently  created  Macroeconomic 
Imbalances  Procedure  have  significantly  deepened  and  widened  the  scope  and  possible 
effectiveness of EU action.  

A first review of the strengthened economic governance framework9 identified some areas for 
improvement,  notably  concerning  transparency,  complexity  and  predictability  of  policy 
making,  which  are  relevant  to  the  effectiveness  of  the  tools.  The  short  experience  with  the 
operation of the new instruments, some of which entered into force only recently, limits the 
possibility to draw firm conclusions on their impact on growth, imbalances and convergence. 

More evidence and experience with the reformed governance structures are necessary before 
embarking on further legislative reform. At the current juncture, the Commission will pursue 
the  full  and  transparent  application  of  the  available  instruments  and  tools.  In  parallel,  the 

7  In the first strand, the Commission  may request amendments to Member States' Partnership Agreements and 
programme governing the use of EU Funds in order to support the implementation of Council recommendations 
or  to  maximise  the  impact  of  European  Structural  and  Investment  Funds  in  the  Member  States  receiving 
financial assistance from the EU. If a Member State fails to undertake such amendments, the Commission may 
propose  to  the  Council  to  suspend  the  payments  of  the  programmes  concerned.  In  the  second  strand,  the 
Commission  must  propose  to  suspend  the  commitments  or  payments  when  a  Member  State  fails  to  take 
corrective  action  under  the  economic  governance  procedures,  e.g.  the  Excessive  Deficit  Procedure  and/or  the 
Excessive Imbalances Procedure or a stability support programme.   
8  Six-Pack:  Regulations  (EU)  n°  1173/2011;  1174/2011;  1175/2011;  1176/2011;  1177/2011;  Directive 
2011/85/EU; 
TSCG: 
(EU) 
http://www.consilium.europa.eu/en/european-council/pdf/Treaty-on-Stability-Coordination-and-Governance-
TSCG/ . The fiscal part of the TSCG is also referred to as "Fiscal Compact". 
9  Economic  governance  review,  Report  on  the  application  of  Regulations  (EU)  n°  1173/2011;  1174/2011; 
1175/2011; 1176/2011; 1177/2011; 472/2013; 473/2013; COM(2014) 905, 28.11.2014. 

Regulations 

Two-Pack: 

473/2013; 

472/2013; 

n° 

7 

 
                                                            
Commission intends to improve clarity and reduce the complexity of the existing framework, 
from  the  fiscal  rules  to  the  application  of  the  Macroeconomic  Imbalances  Procedure. 
Moreover,  as  indicated  in  the  Five  Presidents'  report,  the  Commission  supports  the 
introduction  of  a  system  of  national  Competitiveness  Boards  and  the  establishment  of  an 
advisory European Fiscal Board.  

3.1. Improving transparency and reducing complexity of the current fiscal rules 

With  the  aim  of  improving  transparency  of  the  way  it  applies  the  rules  of  the  Stability  and 
Growth  Pact,  the  Commission  has  published  a  "Vade  mecum  on  the  Stability  and  Growth 
Pact"10. The Vade mecum will be updated annually to timely reflect changes in the evolution 
of the rules and surveillance practice. Furthermore, the Commission is sharing with Member 
States the data and calculations underlying its surveillance decisions. It also intends to share 
the same information with national fiscal councils and – after consultation with the Member 
States – with the public. The new independent advisory European Fiscal Board (see section 
3.4) will contribute to increasing transparency. The Commission will also start presenting an 
update  of  the  full  set  of  external  economic  assumptions  in  September,  to  inform  the 
formulation of national Draft Budgetary Plans. 

The  way  the  rules  are  implemented  can  be  simplified  and  made  more  transparent,  without 
changing their legal basis. The Commission will aim for the following clarifications, in close 
consultation with the Member States.  

First,  the  Commission  will  ensure the  consistency  of  methodology  between  the  debt  rule  of 
the Excessive Deficit Procedure and Member States' structural budgetary target, known as the 
Medium Term Budgetary Objectives. The recent strengthening of economic governance has 
translated  the  debt  criterion  of  the  Excessive  Deficit  Procedure  into  a  simple  rule  for  the 
reduction of government debt in excess of 60% of GDP. What role the rule should play when 
deciding whether to place a Member State in EDP has however remained unclarified. When 
updating the lower limits for the Medium Term Budgetary Objectives that Member States can 
set, the Commission will ensure the consistency of such  values  with  the respect of the debt 
rule in the medium-term.  

Second,  the  Commission  will  aim  to  streamline  the  methodology  for  assessing  compliance 
with the Stability and Growth Pact. Currently, as a result  of discussion with Member States 
over  the  years,  different  sets  of  budgetary  indicators  are  used  to  assess  the  compliance  of 
fiscal policies for Member States under the preventive arm of the Stability and Growth Pact 
and in the Excessive Deficit Procedure.  A harmonised and consistent approach  would  bring 
greater  simplicity  and  allow  for  a  more  consistent  transition  from  the  corrective  to  the 
preventive regime of the Stability and Growth Pact. The Commission will thus explore ways 
for  increasing  reliance  on  a  single  practical  indicator  of  compliance  with  the  Stability  and 
Growth Pact.  

Third,  the  Commission  will  explore  the  possibility  of  updating  multi-year  Council 
recommendations to reduce excessive deficits in order to take into account not only conditions 

10 http://ec.europa.eu/economy_finance/publications/occasional_paper/2013/pdf/ocp151_en.pdf. 

8 

 
                                                            
of unforeseen deterioration of the economic environment – as it is explicitly envisaged in the 
Stability and Growth Pact –, but also in case of unforeseen improvements. Such an approach 
would support the objective of the Excessive Deficit Procedure to ensure a timely correction 
of excessive deficit situations.  

Finally,  the  Commission  is  reviewing  the  transposition  of  the  rules  set  out  in  the  so-called 
Fiscal Compact (i.e. the fiscal part of the Treaty on Stability Coordination and Governance in 
the  EMU),  which  are  designed  to  strengthen  the  consistency  between  the  national  and 
European fiscal frameworks and enhance their ownership in Member States. The Commission 
has undertaken an analysis of the incorporation of the Fiscal Compact into national law in line 
with Article 3(2) TSCG. It has engaged in preliminary consultations with Contracting Parties, 
with a view to giving them, where necessary, the opportunity to submit their observations on 
the Commission's findings as foreseen in Article 8(1) TSCG and then publishing its report on 
the incorporation pursuant to that Article.  

3.2. A stronger Macroeconomic Imbalances Procedure 

The Macroeconomic Imbalances Procedure has been instrumental in bringing the key issues 
on  imbalance  to  the  forefront  in  the  economic  surveillance  and  has  been  effective  in 
supporting effective policy adjustment in some countries (for example in Spain and Slovenia). 
Nevertheless, experience suggests that implementation can be improved in a number of ways.  

First, the transparency of the Commission's decisions within the Macroeconomic Imbalances 
Procedure  will  be  enhanced  by  a  publication  of  a  "Compendium",  which  will  collect  and 
present  the  relevant  information  on  the  implementation  of  the  Macroeconomic  Imbalances 
Procedure  in  one  place.  Also,  the  findings  of  the  In-Depth  Reviews  will  be  presented  in  a 
clearer  way  both  in  the  Country  Reports  and  in  the  Communication  presenting  conclusions 
from  the  In-Depth  Reviews.  The  Commission  will  also  present  explicit  justification  of 
decisions  taken,  including  regarding  country-specific  recommendations  linked  to  the 
Macroeconomic Imbalances Procedure.  

Second, the Commission will ensure appropriate follow-up to the identification of excessive 
imbalances.  This requires economic judgement and active engagement with Member States 
to  tackle  their  specific  challenges  and  ensure  domestic  ownership  of  reforms.  So  far,  the 
Commission  placed  Member  States  with  imbalances  in  different  categories  which  evolved 
over time, and, depending on the nature and intensity of  the imbalances, called for different 
degrees of monitoring and policy action. The Excessive Imbalances Procedure has not  been 
invoked  yet.  The  Commission  will  stabilise  the  categories,  clarify  the  criteria  guiding  its 
decision,  and  better  explain  the  link  between  the  nature  of  imbalances  and  how  they  are 
addressed  in  the  country-specific  recommendations.  The  Commission  will  engage  with 
Member States, including with the new Competitiveness Boards,11 on how best to address the 
imbalances and put in place a strong and time-bound system of specific monitoring to support 
implementation.  The  Excessive  Imbalances  Procedure  can  be  opened  in  case  of  insufficient 

11 See section 3.3.  

9 

 
                                                            
commitment to reforms and lack of effective progress in implementation, and will be used in 
case  of  severe  macroeconomic  imbalances  that  jeopardise  the  proper  functioning  of  the 
economic  and  monetary  union,  like  those  that  led  to  the  crises.  The  Commission  will  also 
invite  greater  Council  involvement  in  the  specific  monitoring  of  countries  with  excessive 
imbalances for which the Excessive Imbalances Procedure is not activated.  

Third,  the  euro  area  dimension  of  the  Macroeconomic  Imbalances  Procedure  will  be 
enhanced.  Euro  area considerations will be better integrated in related documents (the Alert 
Mechanism Report and the Communication on the In-Depth Reviews findings) and decisions. 
The  Macroeconomic  Imbalances  Procedure  will  continue  to  deal  with  the  correction  of 
harmful external deficits as well as with fostering adequate reforms in countries accumulating 
large and sustained current account surpluses.  

3.3. A system of national Competitiveness Boards  

Competitiveness is essential for resilience and adjustment capacity inside the monetary union 
and  to ensure sustainable growth and convergence  looking  forward. To foster progress  with 
structural reforms in the competitiveness domain, the existing EU mechanisms for economic 
policy  coordination  need  to  be  backed  by  strong  national  ownership  of  reform  agendas.  It 
makes sense to raise independent policy expertise at national level and to reinforce the policy 
dialogue  between  the  EU  and  the Member  States.  Therefore,  the  Commission  proposes  that 
the  Council  recommends  Member  States  to  establish  national  Competitiveness  Boards  in 
charge of tracking performance and policies in the field of competitiveness.  

expertise  notably  on 

Competitiveness  Boards  would  help  to  improve  national  policymaking  by  providing 
independent 
and 
assessing 
competitiveness-related  reforms.  They  would  thus  contribute  to  effective  reform  design  and 
implementation,  including  in  response  to  country-specific  recommendations.  The  scope  of 
competitiveness  aspects  to  be  monitored  should  reflect  a  comprehensive  notion  of 
competitiveness, including price and non-price developments. Competitiveness Boards would 
compile and publish their findings on the areas monitored on an annual basis.  

competitiveness  performance 

Competitiveness Boards should conform to  a set  of common principles, taking  into account 
the  diversity  of  experiences  and  practices  in  Member  States.  The  Boards'  advice  should 
inform the wage setting processes, but their aim is neither to interfere with the wage setting 
process  and  the  role  of  the  social  partners,  nor  to  harmonise  national  wage  setting  systems. 
The  Boards  should  be  independent  from  public  authorities  dealing  with  related  matters  and 
have the capacity to ensure high-quality economic analysis. Provided that these requirements 
are met, Member States should be free to design their national Competitiveness Boards, either 
by setting up new institutions or adapting the mandate of existing bodies. 

The Commission adopts together with this Communication a Recommendation for a Council 
Recommendation on the establishment of national Competitiveness Boards. It is addressed to 
the  euro  area  Member  States,  but  the  other  Member  States  are  also  encouraged  to  set  up 

10 

 
similar  bodies.  The  Commission  will  monitor  the  follow-up  to  the  Recommendation  and,  if 
necessary in Stage 2, will present common principles by means of a binding instrument. 

3.4. An advisory European Fiscal Board  

The past years have underscored the importance of conducting responsible fiscal policies as a 
key  pillar  of  the  European  growth  strategy.  Fiscal  policies  should  foster  macroeconomic 
stability  in  line  with  the  rule-based  fiscal  framework.  The  conduct  of  responsible  national 
fiscal policies is especially important in the euro area.  

Together  with  this  Communication,  the  Commission  establishes  an  independent  advisory 
European  Fiscal  Board.  This  Board  will  contribute  in  an  advisory  capacity  to  multilateral 
surveillance  in  the  euro  area.  It  will  be  composed  of  five  renowned  experts  with  credible 
competence  and  experience  in  macroeconomics  and  practical  budgetary  policy-making.  The 
Board's advice will rely on an economic judgment that is consistent with EU fiscal rules. 

The Board should provide an evaluation of the implementation of the EU fiscal framework, in 
particular  regarding  the  horizontal  consistency  of  the  decisions  and  implementation  of 
budgetary  surveillance,  cases  of  particularly  serious  non-compliance  with  the  rules,  and  the 
appropriateness of the actual fiscal stance at euro area and national level.  

As the Stability and Growth Pact centres on national budget balances and debt developments 
and does not determine the aggregate fiscal stance, the Board should also contribute to a more 
informed discussion of the overall implications of budgetary policies at euro area and national 
level,  with  a  view  to  achieving  an  appropriate  fiscal  stance  for  the  euro  area.  Where  it 
identifies risks jeopardising the proper functioning of the Economic and Monetary Union, the 
Board shall accompany its advice with a specific consideration of the policy options available 
under the Stability and Growth Pact. 

The  Board  will  also  cooperate  with  the  national  fiscal  councils,  aiming  at  exchanging  best 
practices  and  facilitating  common  understandings.  This  will  be  undertaken  in  direct 
connection to the Board's tasks and in mutual respect of the prerogatives and legal grounding 
of the national fiscal councils and the European Fiscal Board.  

4.  THE EXTERNAL REPRESENTATION OF THE EURO  

In  order  to  complete  EMU,  greater  responsibility  and  integration  at  EU  and  euro  area  level 
must go hand in hand with institutional strengthening. One of the areas where concrete steps 
towards this objective are explicitly foreseen in the Treaty and can therefore be taken already 
today is the external representation of the euro area.  

The  economic  and  financial  weight  of  the  euro  area  and  the  existence  of  a  single  monetary 
and exchange rate policy have made euro area policy decisions and economic developments 
increasingly relevant for the world economy. While the strengthened governance framework 
for the euro area and the strong convergence of financial sector regulation and supervision in 
the context of the Banking Union have made the euro area internally more robust.  

11 

 
The progress that has been achieved on further internal integration of the euro area also needs 
to  be  projected  externally,  to  allow  the  euro  area  to  play a  more  active  role in  international 
financial  institutions  and  to  shape  effectively  its  future  role  in  the  global  financial 
architecture. A more coherent representation would also be to the benefit of third countries, in 
particular  by  means  of  a  stronger  and  more  consistent  euro  area  contribution  to  global 
economic and financial stability. 

Considerable progress has been made in strengthening the Union and the euro area external 
representation  in  many  international  economic  and  financial  fora.  In  the  International 
Monetary Fund, this included further strengthening of coordination arrangements in 2007, the 
election of a President of the group of EU representatives to the International Monetary Fund 
(so-called  EURIMF),  the  improvement  of  the  working  relationship  between  the  Sub-
Committee  on  the  International  Monetary  Fund  of  the  Economic  and  Financial  Committee 
(EFC/SCIMF)  and  the  EURIMF,  and  the  increased  coordination  among  EURIMF  members 
on  Executive  Board  strategies.  However,  further  steps  are  needed  to  achieve  a  truly  unified 
external representation. 

Accompanying  this  Communication,  the  Commission  is  presenting  a  Communication 
showing the way towards an increasingly unified external representation of the EMU.12 It also 
puts  forward  a  proposal  for  a  Council  Decision  under  Article  138  TFEU  laying  down 
measures in view of establishing a unified representation of the euro area in the International 
Monetary  Fund.13  External  representation  of  the  euro  area  is  still  particularly  fragmented  in 
the International Monetary Fund, which through its lending instruments and surveillance is a 
key institutional actor in global economic governance. Such arrangements should  be set  out 
and agreed without delay, but implemented gradually, to allow all actors involved – at EU and 
international level – to make the necessary legal and institutional adjustments. 

Taking  into  account  the  future  development  of  the  EMU  or  in  the  international  financial 
architecture, the Commission may decide that further initiatives are useful to strengthen euro 
area external representation in also other international fora. 

5.  STEPS TOWARDS A FINANCIAL UNION  

Besides progress in the areas of economic governance, completing the Banking Union is an 
indispensable step on the way towards a full and deep EMU. For the single currency, a unified 
and fully integrated financial system is the prerequisite not only for the proper transmission of 
monetary  policy,  but  also  for  an  adequate  risk  diversification  across  countries  and  general 
confidence in the banking system across the euro area. Important steps have been agreed in 
that direction in recent years, but further work is necessary.  

First,  the  Commission  will  work  with  Member  States  to  fully  implement  the  agreed  legal 
provisions.  The  Single  Supervisory  Mechanism  aimed  at  independent  and  uniformly  high 

12 See COM(2015)602 of 21 October 2015. 
13 See COM(2015)603 of 21 October 2015. 

12 

 
                                                            
quality  prudential  supervision  is  already  fully  operational,  and  the  Single  Resolution 
Mechanism  will  ensure  effective  resolution  of  troubled  banks  as  of  1  January  2016.  The 
Commission will make full use of its powers under the Treaty to ensure the full transposition 
of  the  Bank  Recovery  and  Resolution  Directive  (the  deadline  was  January  2015)14  and  the 
Deposit Guarantee Directive (the deadline was July 2015)15 into national law by all Member 
States  as  soon  as  possible.  Member  States  are  urged  to  ratify  the  Intergovernmental 
Agreement on the Single Resolution Mechanism by 30 November 2015.16  

Second, the Commission encourages Member States to find a swift agreement on an effective 
bridge  financing  mechanism,  to  ensure  that,  while  the  Single  Resolution  Fund  is  gradually 
being  built  up  through  levies  raised  from  the  banking  sector,  the  Single  Resolution 
Mechanism has sufficient resources at its disposal to finance possible residual resolution costs 
for  troubled  banks,  in  accordance  with  the  Bank  Recovery  and  Resolution  Directive.  In  the 
same  vein,  Member  States  should  agree  swiftly  on  a  common  backstop  for  the  Single 
Resolution Fund which should be fiscally neutral over the medium term. 

Third, the Commission will make a legislative proposal before the end of the year on the first 
steps towards a common European Deposit Insurance Scheme with a view to creating a more 
European system, disconnected from the sovereign, so that financial stability is enhanced and 
citizens can be certain that the safety of their deposits does not depend on their geographical 
location.  

The first step towards a more common system will build on a "re-insurance" approach. A joint 
reinsurance  fund  –  supplemental  to  existing  national  Deposit  Guarantee  Schemes  –  would 
contribute  under  certain  conditions  when  national  Deposit  Guarantee  Schemes  are  called 
upon. These conditions should be designed to limit the liability for the fund and reduce moral 
hazard at the national level, and should reflect the fact that national funds are gradually being 
built  up  and  different  starting  points  successively  being  aligned.  The  European  Deposit 
Insurance  Scheme  would  be  mandatory  for  euro  area  Member  States  and  open  to  non-euro 
area Member States willing to join the Banking Union.  

Fourth,  in  parallel  with  its  proposal  on  the  European  Deposit  Insurance  Scheme,  the 
Commission  is  committed  to  further  reduce  risks  and  ensure  a  level  playing  field  in  the 
banking sector and limit the bank-sovereign loop. To this end, it will set out how work can be 

14On 19th October 2015, the Bank Recovery and Resolution Directive had not yet, or only partially been 
transposed by 12 Member States: Czech Republic, Luxembourg, Poland, Romania, Sweden, Italy, Lithuania, 
Belgium, Cyprus, the Netherlands, Spain, and Slovenia. 

15 On 19th October 2015, the Deposit Guarantee Directive had not yet, or only partially been transposed by 18 
Member States: Czech Republic, Spain, France, Slovakia, Belgium, Estonia, Ireland, Greece, Italy, Cyprus, 
Lithuania, Luxembourg, Malta, The Netherlands, Poland, Romania, Slovenia, and Sweden. 

16 On 19th October 2015, the Intergovernmental Agreement had not yet been ratified or the instruments of 
ratification had not yet been deposited by 13 Member States: Austria, Belgium, Estonia, Germany, Greece, 
Ireland, Italy, Lithuania, Luxembourg, Malta, The Netherlands, Portugal, and Slovenia. 

13 

 
                                                            
brought  forward  in  those  outstanding  areas  where  the  regulatory  and  prudential  framework 
may need to be reviewed and completed to achieve these objectives.  

Finally, alongside the completion of the Banking Union, the Capital Markets Union is a key 
priority. On 30 September, the Commission published the Capital Markets Union Action Plan, 
inter  alia  aiming  to  ensuring  more  diversified  sources  of  finance  for  companies  and 
strengthened  cross-border  risk-sharing  through  deepening  integration  of  bond  and  equity 
markets. 

6.  EFFECTIVE 

DEMOCRATIC 

LEGITIMACY, 

OWNERSHIP 

AND 

ACCOUNTABILITY  

Effective  democratic  legitimacy  and  accountability  are  crucial  for  strengthening  the 
ownership  in  Stage  1  of  the  deepening  of  EMU  and  is  indispensable  in  Stage  2,  when  the 
envisaged  initiatives  involve  more  pooling  of  sovereignty.  In  recent  years,  the  Commission 
has  gradually  established  a  deeper  and  more  permanent  dialogue  with  the  Member  States 
through  bilateral  meetings,  more  targeted  discussion  in  the  Council  and  more  widespread 
technical  and  political  missions  to  the  capitals.  The  Commission  will  continue  to  intensify 
these  dialogues,  also  by  making  use  of  its  network  of  European  Semester  Officers  in  the 
Member States. 

First  practical  steps  have  been  initiated  by  the  European  Parliament  to  strengthen 
parliamentary oversight as part of the European Semester. ‘Economic dialogues’ between the 
European Parliament and the Council, the Commission and the Eurogroup have taken place in 
line with the provisions of the ‘Six-Pack’ and ‘Two- Pack’ legislation. This has already been 
part of the last European Semester rounds. These dialogues may be enhanced by agreeing on 
dedicated  time-slots  during  the  main  steps  of  the  Semester  cycle.  A  new  form  of  inter-
parliamentary  cooperation  was  established  to  bring  together  European  and  national  actors. 
This  takes  place  within  the  European  Parliamentary  Week  organised  by  the  European 
Parliament  in  cooperation  with  national  Parliaments,  which  includes  representatives  from 
national  Parliaments  for  in-depth  discussions  on  policy  priorities.  The  ‘Two-Pack’  also 
enshrined the right for a national Parliament to convene a Commissioner for a presentation of 
the Commission’s opinion on a draft budgetary plan or of its recommendation to a Member 
State in Excessive Deficit Procedure. 

The timing and added value of these parliamentary moments could be further strengthened, in 
line with the renewed European Semester. In particular, the Commission could engage with 
the European Parliament at a plenary debate before the Annual Growth Survey is presented, 
and continue the debate following its adoption. Moreover, a second dedicated plenary debate 
could  be  held  upon  presentation  by 
the  Country-Specific 
Recommendations, in accordance with the relevant provisions of the ‘Six-Pack’ on economic 
dialogue.  At  the  same  time,  Commission  and  Council  representatives  could  participate  in 
inter-parliamentary meetings in particular in the context of the European Parliamentary Week. 

the  Commission  of 

14 

 
This  new  practice  could  be  progressively  agreed  upon  in  more  detail  between  the  EU 
institutions in full respect of their respective institutional role. 

The Commission will also work out model arrangements to make the interaction with national 
Parliaments  more  efficient.  Such  interaction  should  apply  to  national  parliamentary  debates 
both  on  the  Country-Specific  Recommendations  addressed  to  the  Member  State  and  within 
the annual national budgetary procedure. That would give more life to the right recognised in 
the ‘Two-Pack’ to convene a Commissioner. As a rule, national Parliaments should be closely 
involved in the adoption of National Reform and Stability Programmes. 

7.  COMPLETING EMU: PREPARING FOR STAGE 2  

The steps presented in this Communication for Stage 1 of completing EMU, build on existing 
instruments  and  make  the  best  possible  use  of  the  existing  Treaties.  However,  all  these 
initiatives of Stage 1 should not be seen in isolation, but rather as stepping stones towards the 
next stage, starting as of 2017. In Stage 2, more far-reaching measures should be agreed upon 
to  complete  the  EMU's  economic  and  institutional  architecture.  This  will  involve  sharing 
more sovereignty and solidarity and will have to be accompanied by strengthened democratic 
oversight. 

To prepare the transition from Stage  1 to Stage 2 of completing the EMU, the Commission 
will  present  a  White  Paper  in  spring  2017,  building  on  the  progress  made  in  Stage  1  and 
outlining  the  next  steps  needed  to  complete  the  EMU  in  Stage  2.  The  White  Paper  will  be 
prepared in consultation with the Presidents of the other EU institutions.  

2016 will be crucial in preparing this White Paper, building on the three following strands:  

-  First,  all  EU  institutions  and  Member  States  should  agree  and  take  action  on  the 
measures  presented  in  this  Communication.  In  particular,  it  would  be  important  that 
the  Competitiveness  Boards  and  the  European  Fiscal  Board  become  operational  by 
mid-2016.  

-  Second,  it  is  key  to  consult  and  engage  with  citizens,  stakeholders,  social  partners, 
European and national Parliaments, Member States, regional and local authorities on 
completing  EMU  in  Stage  2.  With  a  view  to  stimulate  this  necessary  broad-based 
debate  across  Europe,  the  Commission  will  facilitate  a  wide  consultation,  including 
public  debates  in  2016.  The  consultation  should  be  broad-based,  transparent  and 
inclusive and allow citizens to give their views.  

-  Finally,  the  Commission  will  establish  in  mid-2016  an  Expert  Group  to  explore  the 
legal,  economic  and  political  preconditions  that  will  inform  the  more  long-term 
proposals as outlined in the Five Presidents' Report.  

The implementation of  Stage  1, the outcome of  the consultation  and the work of  the expert 
group should contribute to shaping a consensus for more fundamental steps ahead. This input 

15 

 
 
will  feed  into  the  White  Paper,  which  should  eventually  –  following  further  discussion  –be 
translated into a stronger legislative and institutional framework for the EMU.  

8.  CONCLUSION  

This  Communication substantiates the different steps  under Stage  1 that the Five  Presidents 
had outlined in their report on "Completing Europe's Economic and Monetary Union". These 
steps  are  ambitious  and  pragmatic.  Following  the  principle  of  "deepening  by  doing",  the 
proposed  measures  build  on  existing  instruments  and  make  the  best  possible  use  of  the 
existing Treaties. 

The  presented  initiatives  will  help  to  boost  competitiveness  and  economic  and  social 
convergence,  with  the  aim  of  further  improving  the  Economic  Union.  The  Fiscal  Union  is 
fostered  via  achieving  and  maintaining  responsible  fiscal  policies  at  national  and  EU  level. 
The  initiatives  will  also  help  to  further  increase  the  efficiency  and  stability  of  financial 
markets  and  to  complete  the  Financial  Union.  Finally,  the  Political  Union  is  supported  by 
enhancing democratic accountability and national ownership. 

All of these elements are important in themselves, but they are also interdependent. They thus 
need  to  be  tackled  in  parallel.  As  a  whole,  the  Stage  1  initiatives  will  further  bolster  the 
resilience  of  the  EMU.  They  are  also  an  important  step  in  stimulating  the  convergence 
necessary to move on to Stage 2 of the process of completing a deep and genuine EMU.  

The Commission calls on all the actors involved to ensure that the process to deepen EMU is 
swiftly implemented. Only continued ambition and concerted action can ensure that the EMU 
not  only  survives  but  thrives,  and  regains  its  path  towards  strong,  sustainable  and  inclusive 
growth and job creation.  

16 

 
TABLE 1: TIMELINE OF THE EUROPEAN SEMESTER 2016 

17