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EUROPEAN COMMISSION

Brussels,
COM(2010) 367/2

COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN
PARLIAMENT, THE EUROPEAN COUNCIL, THE COUNCIL, THE EUROPEAN
CENTRAL BANK, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE
AND THE COMMITTEE OF THE REGIONS
Enhancing economic policy coordination for stability, growth and jobs –
Tools for stronger EU economic governance

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COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN
PARLIAMENT, THE EUROPEAN COUNCIL THE COUNCIL, THE EUROPEAN
CENTRAL BANK, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE
AND THE COMMITTEE OF THE REGIONS
Enhancing economic policy coordination for stability, growth and jobs –
Tools for stronger EU economic governance
Europe has learned many lessons from the recent financial and economic crisis. We see very
clearly now that in a highly integrated Union, and even more so in a monetary union, our
economies and our successes are linked. Although the EU has a number of instruments for the
co-ordination of economic policy the crisis has shown that they have not been used to the full
and that there are gaps in the current governance system. There is broad political agreement
that this has to change and that the EU needs to be equipped with a broader and more
effective set of policy instruments to ensure its future prosperity and standards of living.
The EU has taken bold, comprehensive and consistent measures to overcome the crisis and
draw lessons for the future. The launch of the European Economic Recovery Programme in
2008 helped cushion the shock of the downturn on our economies. Coordinated support was
provided to EU Member States that needed it and to safeguard the stability of the Economic
and Monetary Union. A set of measures to strengthen the supervision and regulation of the
financial system is under negotiation, in the EU and beyond. Now that the framework of the
Europe 2020 Strategy is in place, a series of initiatives will follow, designed to unlock the
EU's potential to boost growth and create jobs.
What the EU needs is a well defined policy approach that supports economic recovery, puts
public finances back on a sound footing and actively promotes sustainable growth and jobs.
This is the policy vision set out in the Europe 2020 strategy that has just been endorsed by the
European Council. All relevant instruments need to be brought together to ensure that future
policy decisions are coherent, serve these goals and, once decided, are implemented and
enforced. By strengthening its economic policy co-ordination the EU can deliver a new and
sustainable growth agenda for its citizens.
In this context, the purpose of this Communication is to:
• Develop the proposals for greater economic policy co-ordination and surveillance set out in
the Commission's 12 May Communication on reinforcing economic policy coordination
into concrete proposals by (i) addressing imbalances through stronger macroeconomic
surveillance, including alert and sanction mechanisms; (ii) strengthening national fiscal
frameworks by specifying minimum requirements for domestic fiscal frameworks, and
notably moving from annual to multi-annual budgetary planning; (iii) strengthening the
Stability and Growth Pact, in particular by focusing on the issue of debt dynamic as well as
deficits.
• Set out effective enforcement mechanisms to ensure that Member States will act in
compliance with the EU framework they have agreed. Where developments in Member
State economies pose a risk to the overall development of the Union, a series of preventive
and corrective measures are proposed, including a range of sanctions that could be applied
where breaches occur.

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• Establish a European semester for policy co-ordination and explain the process and timing
that will provide a European input to national policy decisions, leading to more effective
ex-ante policy co-ordination. This also applies to the structural reforms and the growth
enhancing elements of the Europe 2020 strategy.
The proposals in this Communication can all be agreed under the terms of the Lisbon Treaty.
They are addressed to all 27 Member States although aspects of some of them will apply only
to those Member States that are in the euro area. They are designed to bring together, at the
same time, the country monitoring under the Stability and Growth Pact and Europe 2020 and
to make sure that the thematic monitoring of the Europe 2020 targets is anchored in sound
economic and fiscal policies. These proposals develop further the policy ideas set out in the
Commission's Communication of 12 May 2010 1 and build on the orientations agreed at the 17
June 2010 European Council, reflecting the progress to date of the Task Force on economic
governance. They respond to the invitation of the European Council to the Task Force and the
Commission to develop its orientations further and to make them operational.
Taken together, this combination of proposals will equip the EU and national levels to have
confidence in the quality of the policy and decision making process and to have earlier
warning of where national situations are going off track. This will enable all Member States to
maximise the positive synergies of belonging to the same Union. It will bring greater
transparency and mutual confidence through a more collective process. It will also minimise
the negative spillover effects where Member States do not stick to agreed limits and
ultimately, sanction those who endanger the common good through unsustainable national
actions. By bringing the Stability and Growth Pact and Europe 2020 processes together the
EU can build on the necessary consolidation measures as essential steps in its longer term
growth strategy, building a smarter, more sustainable and more inclusive EU for the future.
1.

BROADER MACROECONOMIC SURVEILLANCE

The EU needs stronger macro-economic country surveillance integrating all relevant
economic policy areas. Macroeconomic imbalances should be looked at jointly with fiscal
policy and growth-enhancing structural reforms. The objective is to ensure macroeconomic
stability, prevent occurrence of harmful imbalances and establish broad macroeconomic
framework conditions which allow for sustainable and dynamic growth.
1.1.

Surveillance of macroeconomic imbalances

The emergence of large macroeconomic imbalances, including large and persistent
divergences in competitiveness trends, proved highly damaging to the EU and in particular to
the euro when the crisis struck. It is therefore important to develop a new structured
mechanism for the surveillance of harmful macroeconomic imbalances and their correction in
all Member States. Following a two-stage approach, the Commission is proposing a
mechanism comprising:
– a preventive arm with regular (annual) assessments of the risk of macroeconomic
imbalances, including an alert mechanism,

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COM(2010) 250 on Reinforcing economic policy coordination.

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– a corrective arm, designed to enforce the implementation of remedies in case of harmful
macroeconomic imbalances.
Preventive arm: an alert system
Within the framework of the macro-structural country surveillance under Europe 2020, the
Commission would assess macro-structural weaknesses, deteriorating competitiveness and
emerging macro-economic imbalances on a country-by-country basis, taking into account the
economic and financial interlinkages in particular within the euro area.
A scoreboard establishing a set of indicators revealing external and internal imbalances
combined with qualitative expert analyses will be the basis for an alert mechanism. The use of
indicators would provide important guidance, but there will not be a mechanical link between
the results of the scoreboard and the policy follow up.
For countries exhibiting significant risks, in-depth country analysis would be conducted.
Where emerging risks are confirmed, the Commission will propose country-specific Council
recommendations to tackle harmful macroeconomic imbalances. The Commission could also
issue an early warning directly to that Member State.
Depending on the nature of the imbalances identified in the Member State(s), the
recommendations could address a broad range of policy issues covering macroeconomic
policies, wages and labour markets as well as the functioning of goods and services markets
and macro-prudential policies. These will be incorporated into the single set of countryspecific recommendations that the Commission will propose annually, together with the
recommendations issued under the thematic surveillance of structural reforms, as described
below.
This mechanism will be the central part of the enhanced (non-fiscal) macroeconomic country
surveillance foreseen under Europe 2020. Together with fiscal surveillance under the Stability
and Growth Pact, country surveillance aims at ensuring a stable macroeconomic environment
conducive to growth and employment creation, taking full account of the interdependence
between Member States economies, particularly in the euro area. This will ensure consistency
within Europe 2020, in particular by identifying the macro/fiscal constraints within which
Member States are to implement structural reforms and can invest in the growth-enhancing
policies of Europe 2020.
In particularly serious cases, the Commission would recommend placing the Member
State in an "excessive imbalances position". This would trigger the ‘corrective arm’ of the
mechanism described below. In such a case, the Commission could also issue an early
warning directly to that Member State.
Main features of the alert mechanism for macroeconomic imbalances
The alert mechanism will identify Member States with potentially problematic levels of
macroeconomic imbalances and where further in-depth country-specific analysis is required.
The alert mechanism will consist of a scoreboard of indicators, complemented by more
qualitative analysis. These indicators would include measures of the external position and price or
cost competitiveness as well as internal indicators. The use of internal indicators is justified on the
ground that external imbalances necessarily have internal counterparts. For examples, indicators such
as current account balances, net foreign asset positions, real effective exchange rate based on unit

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labour costs and a GDP deflator, increases in real house prices, government debt, and the ratio of
private sector credit to GDP could be part of this scoreboard.
Alert thresholds will be defined and announced for each indicator. The thresholds could be
calculated on the basis of a simple and transparent statistical concept. A possible approach could be to
use the 75% and 25% percentile of the statistical distributions of each variable (across countries and
time) at the level above or below which a further analysis is warranted. It is however important to bear
in mind that absolute threshold levels for individual variables have only limited economic meaning
and need to be complemented by economic reasoning as appropriate levels can vary depending on the
economic circumstances of the country.
A differentiated scoreboard for euro-area and non-euro area Member States appears
warranted. Due to differences in exchange rate regimes and in key economic characteristics, the
behaviour of some economic variables in the euro area is quite different from the non-euro-area
countries. This argues in favour of using different alert thresholds for euro-area and non euro-area
Member States. Moreover, in the absence of nominal exchange rates within the monetary union, the
euro area deserves also a special analysis of real effective exchange rate developments.

Corrective action
The imbalances surveillance framework would include an enforcement mechanism. A
Member State presenting significant risks would be placed by the Council in a position of
"excessive imbalances" on the basis of a Commission recommendation. Risk warnings and/or
recommendations issued by the European Systemic Risk Board on macro-financial stability
would be taken into account.
A Member State in "excessive imbalances position" would be subject to stricter surveillance.
The Council would issue policy recommendations (based on Article 121(4) and Article 136
TFEU for euro-area Member States) and the Member State would be required to report
regularly to the Ecofin Council and the Eurogroup (e.g. within 6 months following the
Council recommendation and on a quarterly basis thereafter) on progress in implementing the
recommended reforms.
This mechanism would apply to all Member States. As with the EU's fiscal framework, which
also applies to all EU Member States, more stringent rules would apply to euro area Member
States. Taking account of the deep economic and financial inter-linkages within the euro area
and their impact on the single currency, specific enforcement mechanism could be
envisaged for euro-area Member States in case of repetitive non-respect of the
recommendations to address harmful macroeconomic imbalances that risk jeopardizing
the proper functioning of economic and monetary union.
Insufficient compliance with the recommendations under the surveillance of imbalances
would be considered an aggravating factor in the fiscal assessment under the Stability and
Growth Pact.
By end-September, the Commission will make formal proposals for secondary legislation,
establishing a framework for dealing with excessive imbalances based on Articles 121 and
136 of the Treaty on the Functioning of the European Union. These proposals will specify the
role of the alert mechanism; the role and obligations of the Commission, Member States and
the Council; the procedure for the adoption of recommendations; and the rules and procedures
as well as the enforcement mechanisms for euro area Member States.
1.2.

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Thematic surveillance of structural reforms

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To return their economies to sustainable growth and increase competitiveness, Member States
need to restore macroeconomic stability and sound public finances. At the same time they
need to focus their efforts on the delivery of Europe 2020 objectives and the five headline
targets agreed by the European Council An integrated approach to policy design and
implementation is essential given the constraints on public finances. The identification of the
bottlenecks which impede or delay the attainment of the Europe 2020 objectives is a key
element of the thematic surveillance.
The objective of thematic structural reform surveillance is therefore two-fold:
(i)

To facilitate the attainment of the Europe 2020 objectives, in particular the five
headline targets 2 . This includes measures in the areas of employment, social
inclusion, research and innovation, education, energy and climate change as well as
measures to tackle any other factors that hinder Member States' economic
development or growth.

(ii)

To ensure ambitious implementation of the structural reforms in a manner that is
consistent with the macro-fiscal constraints.

This surveillance will be carried out in accordance with Article 121 and 148 TFEU and on the
basis of the Europe 2020 Integrated Guidelines. Based on Member States' National Reform
Programmes the Commission will assess the way each country is addressing the bottlenecks it
has identified and how it is progressing towards its national Europe 2020 targets.
In case of insufficient progress, or when policies are not sufficiently consistent with the
integrated guidelines (i.e. the Integrated Guidelines for economic and employment policies), a
country-specific or euro-area recommendation will be issued.
In cases where economic policies are not consistent with the Broad Economic Policy
Guidelines, or when they risk jeopardising the proper functioning of the economic and
monetary union, the Commission will directly address a warning to the relevant Member
State(s).
Building on this country-specific monitoring, the Commission will make an overall
assessment of progress towards the five EU headline targets, assess performance against that
of main (international) trading partners and examine the underlying reasons in case of
insufficient progress. In this examination the Commission will also assess how the
implementation of the Europe 2020 flagship initiatives is progressing both at EU and at
national level as they support and complement the efforts towards these targets.
The Commission will report to the Spring European Council each year, and will propose
specific orientations to enhance the implementation of the corresponding reform measures.
These orientations will also feed into the single set of country specific recommendations
which the Commission will propose in early July.
2.

NATIONAL FISCAL FRAMEWORKS

Resilient and effective domestic fiscal frameworks play a crucial role in strengthening fiscal
consolidation and sustainable public finances. While Member States' specific needs and

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See targets at: http://ec.europa.eu/eu2020/pdf/council_conclusion_17_june_en.pdf

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preferences must be respected, a number of features stand out as being needed in terms of
ensuring minimum quality and complementarity with EU rules 3 :
(1)

First, in order to ensure quality standards in all Member States, a consistent approach
is essential regarding accounting (ESA95 accounting is required for EU level fiscal
surveillance); the capacity of national statistical offices must be sufficient to ensure
compliance with EU data and reporting requirements; and forecasting systems must
allow for the provision of reliable and unbiased growth and budget projections.
Ideally, Commission forecasts should be used as the benchmark.
The Commission proposes to specify clearly the correspondence between national
cash data and ESA95 data with monthly data provision on a cash basis with translation
in ESA95 terms on a quarterly basis. Forecasting methodologies and macroeconomic
assumptions used for budgetary purposes should be the subject of appropriate auditing.

(2)

Second, Member States should have in place national fiscal rules ensuring that
domestic fiscal frameworks reflect the Treaty obligations. Provisions of national fiscal
rules should ensure the respect of the Treaty reference values on deficit and debt and
be consistent with the Medium-Term budgetary Objective (MTO). Fiscal rules and
credible enforcement mechanisms should be codified by national law.

(3)

Third, reforms of national fiscal frameworks should promote the switch to multiannual budgetary planning. Yearly budgetary objectives should be underpinned by
multi-annual frameworks, including a breakdown for projected revenue and
expenditure and indications of where the adjustment towards the objectives is planned
to come.

(4)

Finally, domestic frameworks must be comprehensive and cover the whole system of
general government finance. This is particularly important in decentralised economies.
The assignment of budgetary responsibilities across levels of government should be
clearly specified and appropriate monitoring and enforcement provisions put in place.

The Commission will make formal proposals in September specifying the minimum
requirements for the design of domestic fiscal frameworks and the procedural (reporting)
requirements to allow for verification of compliance. These will take the form of a new
regulation based on Article 126(14) TFEU, to foster the application of Treaty Protocol No 12
on the Excessive Deficit Procedure. Infringement proceedings could be instigated in the case
of failure to comply.
3.

INCREASED FOCUS ON PUBLIC DEBT AND FISCAL SUSTAINABILITY IN THE SGP

The Stability and Growth Pact (SGP) should take greater account of the interplay between
debt and deficit to improve incentives to run prudent policies.
As regards the preventive arm of the SGP, the Commission proposes that a faster pace of
progress towards a general government balance that provides a safety margin with respect to
the 3% of GDP deficit limit and that ensures rapid progress towards sustainability, i.e. the so-

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See also Ecofin Council Conclusions of 18 May 2010 on Budgetary Frameworks.

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called Medium-Term budgetary objective (MTO) be required for Member States with a high
level of debt or pronounced risks in terms of future debt developments.
As regards the corrective arm, the Commission proposes that the debt criterion of the
excessive deficit procedure be implemented effectively through a clear and simple
numerical benchmark for defining a satisfactory pace of debt reduction: Member States with
debt ratios in excess of 60% of GDP could become subject to the EDP if the decline of debt in
a given preceding period falls short of this benchmark (fraction of the gap between the debt
level and the 60% of GDP threshold). In the same vein, bringing the deficit below 3% of GDP
may not be sufficient for the abrogation of the EDP if the debt has not been put on a
sustainable declining path. The precise parameters would be set out in the Code of Conduct
accompanying the Stability and Growth Pact.
More than the deficit, public debt developments are subject to factors outside the direct
control of governments (in particular inflation, interest rates and cyclical growth
developments), therefore judgement is necessary before deciding whether they warrant
placing the country in EDP. An overall assessment should be made, taking into account a
range of parameters. These include the degree of closeness of the debt ratio to the 60%-ofGDP reference value and whether the debt is temporary and/or exceptional; and other relevant
factors reflecting risks of future debt increases and financing strains, such as:
– the maturity structure and currency denomination of debt;
– guarantees to corporations, financial institutions and households;
– accumulated reserves and other government assets;
– implicit liabilities, notably related to ageing;
– the level and change in private debt, to the extent that it may represent an implicit liability
for the government;
– the factors behind debt change (primary balance, inflation, growth, interest rates, one-offs);
and
– stock-flow operations.
In case of failure to comply with recommendations, sanctions should be applied.
In September the Commission will propose amendments to both the preventive (Regulation
(EC) No 1466/97) and corrective arm of the SGP (Regulation (EC) No 1467/97) to make
these principles operational.
4.

EFFECTIVE ENFORCEMENT OF ECONOMIC SURVEILLANCE THROUGH APPROPRIATE
SANCTIONS AND INCENTIVES

The common rules and co-ordination procedures enshrined in the Treaty and the Stability and
Growth Pact have not prevented a number of Member States from implementing fiscal
policies in defiance of the existing framework. There is clearly a need to strengthen the
credibility of the EU's fiscal surveillance framework through a more rules-based application
of sanctions. To increase their effectiveness in the future, a wider range of sanctions and

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incentives should be used more preventively and kick in at an earlier stage. The deterrent
effect of financial sanctions should constitute a real incentive for compliance with the rules.
Several types of sanctions are foreseen in Article 126(11) TFEU in cases where a Member
States fails to comply with EU guidance. These comprise the requirement to publish
additional information, an invitation to the European Investment Bank to reconsider its
lending policy towards the Member State concerned, the requirement to make a non-interestbearing deposit of an appropriate size until an excessive deficit has been corrected, and the
possibility to impose fines of an appropriate size.
In refining the functioning and scope of possible financial incentives, it is important and
necessary to seek effectiveness and equal treatment between Member States. To ensure
proportionality, financial sanctions linked to the EU budget could be defined as a percentage
of the GNI or GDP of the relevant Member State up to an identical upper limit for all Member
States. This upper limit will ensure that all Member States can de facto be subject to
sanctions. Moreover, the amounts of commitments and payments concerned by suspension
and/or cancellation would be set on a pro-rata basis for the eligible funds up to this upper
limit.
The new sanctions "toolbox" would therefore contain different types of sanctions and
incentives, which will be activated depending on the set of circumstances and gravity of the
situation. The proposed improvements to the existing enforcement mechanisms would require
amending the preventive and corrective arms of the SGP (Regulations 1466/97 and 1467/97)
as well as through an appropriate mechanism based on the various legal acts on which EU
expenditure programmes are based.
As regards the preventive arm, (i.e. when a Member State is not making sufficient progress
towards its Medium term budgetary Objective) in good economic times) two sets of
incentives/sanctions will be proposed.
First, for euro-area Member States, the incentive will consist of an interest-bearing deposit
temporarily imposed on a Member State which is making insufficient progress with budgetary
consolidation. One option would be to define a simple expenditure-rule consistent with the
adjustment towards the country-specific MTO. A significant deviation from the agreed
expenditure path would be judged as imprudent fiscal policy-making and give rise to a
warning from the Commission in line with the provisions of Article 121(4) TFEU. In case of
persistent violations, an interest-bearing deposit would be imposed by the Council until the
violation has been corrected. The deposit would be released once the situation giving rise to
its imposition had come to an end.
Second, still within the preventive arm, the Commission will propose to establish ex-ante
conditionality linking disbursement of cohesion policy support to structural and
institutional reforms directly linked to the operation of cohesion policy with a view to
improving its effectiveness and efficiency.
As regards the corrective arm, (i.e. when a Member State is subject to an excessive deficit
procedure) the Commission proposes a new system of financial sanctions and incentives to
complement the use of deposit and fines. This would deploy the EU budget as complementary
leverage in terms of ensuring respect of the key macro economic conditions of the SGP.
Sanctions should not affect end beneficiaries of EU funds but rather payment to Member
States or payments for which Member States act as an intermediary. The following criteria

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will be proposed to establish which EU spending categories and programmes could be
considered:
• effectiveness of the funds concerned is dependent on sound fiscal policies,
• clearly attributable to the Member State found not to comply with the SGP or other
conditions,
• programmed and implemented under shared management, i.e. where Member States have
the main responsibility or representing reimbursements of EU funds to Member States,
• sizeable enough to create credible sanctions or incentives,
• with an impact (potentially) on the quality of public spending and structural adjustment.
These criteria are met in the case of most expenditures related to cohesion policy, Common
Agricultural Policy (EAGF and EAFRD) spending and fisheries fund (EFF) expenditures.
With regard to the CAP and EFF, a situation in which a reduction of EU spending would lead
to a reduction of farmer’s and fisherman's income would be excluded. Conditionality on
payments should therefore target the EU reimbursements to the national budgets only:
Member States would have to continue to pay the farm subsidies, but the reimbursement of
this expenditure by the EU budget could be (partially) suspended.
In cases of non-compliance with the rules, incentives can therefore be created by suspending
or cancelling part of current or future financial appropriations from the EU budget. Resources
cancelled should remain within the EU budget.
As a complement to the provisions of Article 126(11), two types of financial sanctions could
be envisaged earlier in the EDP process.
• Step 1 – the establishment of an excessive deficit (Article 126(6) TFEU) would result in the
suspension of commitments related to multiannual programmes. This suspension would not
have an immediate impact on payments and would therefore allow time for effective remedial
action to be taken. Member States could be asked to redirect funds to improve the quality of
public finances. Similarly, for CAP reimbursements (EAGF), an announcement of the
decision to cancel payments by a set deadline would be made. Re-budgeting would be
foreseen as soon as the Member State meets the Council recommendations.
• Step 2 – non-compliance with the initial recommendations to correct the excessive deficit
Article 126(8) TFEU) would result in cancellation of commitments of year n. Similarly, CAP
reimbursements (EAGF) for year n would be cancelled. This would lead to a definitive loss of
payments for the Member State concerned.
Other incentives could also be created by modulating co-financing rates or introducing a
performance Union reserve to reward sound fiscal policies. Such a reserve could be funded
with cancelled commitments under the above-mentioned step-2-procedure.
The financing side of the EU budget also contributes to reinforcing compliance. The present
Own Resources system provides that fines paid by the Member States in the context of the
EDP automatically reduce the contribution of participating Member States without a deficit
that is excessive to the budget (according to their share in the total GNI of the eligible
Member States). This system ensures that the contribution of the fined Member State to the

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budget would effectively increases and the contribution to all other Member Sates decreases.
The Commission will also assess whether the EU budget revenue side can be adequately used
as an incentive for compliance.
The required changes will be incorporated in the Commission's 2011 proposals for the next
multi annual financial framework. In the meantime, a regulation based on Article 136TFEU
creating a new sanction toolbox having similar effects will be proposed for the euro-area
Member Sates by end-September. The Commission will explore ways of extending these
sanctions and incentives "toolbox" to all Member States as soon as possible.
5.

THE CO-ORDINATION CYCLE UNDER THE EUROPEAN SEMESTER

The setting up of a European Semester will integrate the different strands of economic policy
coordination and allow for better and ex-ante coordination of economic policies.
Ex ante coordination of economic policies. The core objective of the proposal is to give a
clear ex ante-dimension to economic policy coordination in the EU and the euro area. Under
the European Semester, complementarity of national economic policy plans will be ensured at
European level through policy guidance before final decisions on the budget for the following
year are taken in Member States. For the euro area a horizontal assessment of fiscal stance
should be carried out on the basis of the national Stability Programmes and the Commission
forecasts. Special consideration to the aggregate stance should be given in the cases of serious
economic stress in the euro area, when sizeable fiscal policy measures taken by individual
Member States are likely to produce important spill-overs. In case of obvious inadequacies in
the budget plans for the following year, a revision of the plans could be recommended.
Better integrated surveillance. The European Semester will cover all elements of economic
surveillance, including policies to ensure fiscal discipline, macroeconomic stability, and to
foster growth, in line with the Europe 2020 strategy. Existing processes – e.g. under the
Stability and Growth Pact and the Broad Economic Policy Guidelines – will be aligned in
terms of timing while remaining legally separate. Stability and Convergence Programmes
(SCPs) and National Reform Programmes (NRPs) will be submitted by Member States at the
same time and assessed simultaneously by the Commission.
The content of Stability and Convergence Programmes (SCPs) has to be adapted to the
rationale of having a European semester. The intention is obviously not to require Member
States to submit full-fledged budgets to the EU for "validation" before they present them to
their national Parliaments. However, these Programmes should include the necessary
information for meaningful ex-ante discussions on fiscal policy. The minimum requirements
should include:
• a full-fledged updated macroeconomic scenario;
• concrete indications on plans for year t+1;
• a description of the envisaged policies;
• medium-term projections for the main government finances variables;
• an assessment of fiscal developments in year t-1;

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• an update of the fiscal plans for the current year.
The European Semester. The cycle starts in January with an "Annual Growth Survey"
(AGS) prepared by the Commission, reviewing economic challenges for the EU and the euro
area as a whole. By end February, the European Council provides strategic guidance on
policies, which is taken into account by Member States in their SCPs and NRPs which will be
submitted in April. The Council issues country-specific policy guidance as mentioned in
section 1 in early July. In the second part of the year, Member States finalise national budgets.
In its AGS of the following year, the Commission assesses how Member States took EU
guidance into account.
Policy guidance under the European Semester. Recommendations will be candid and
concrete. In the area of fiscal policy, there will be a strong focus on year t+1, and surveillance
will give clear indications on whether the envisaged targets and underpinning policies are
appropriate. Regarding policies to foster growth and address macro-financial risks,
recommendations will focus on a limited number of key reforms and deadlines will be set for
their implementation.
Stronger involvement of the European Parliament. Every year in January the Commission
will present its AGS to the European Parliament.
National Parliaments. This enhanced economic governance of the EU would benefit from an
early and strong association of national parliaments to the European semester process and
from greater dialogue with the European parliament.
Early implementation. The Commission proposes to implement the European Semester as of
2011. Amendments to the existing Code of Conduct for SCPs 4 , including inter alia the new
date of submission of SCPs will be presented to the ECOFIN Council for endorsement.
Immediate legislative changes do not appear to be necessary.
Transition to the European Semester. The Commission will provide guidance on the
contents of the future National Reform Programmes in July. It will also propose bilateral
dialogue with Member States in autumn 2010 to discuss:
• A medium term national macro economic scenario to frame policy programmes for the
period up to 2015, including growth expectations and broad budgetary orientations;
• Confirmation of national targets in line with the five agreed Europe 2020 targets. Member
States should indicate for each target the policies they will pursue to meet their national
targets and the public investment needed to meet them;
• How to remove the bottlenecks preventing Member States from meeting their targets and
the broader Europe 2020 objectives.

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Full title is ‘Specifications on the implementation of the Stability and Growth Pact and Guidelines on
the format and content of Stability and Convergence Programmes’.

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6.

CONCLUSIONS AND NEXT STEPS

The Commission will make the necessary formal proposals contained in this Communication
by end-September – see annex for details.
In the meantime, the Commission invites the Ecofin Council of 13 July to confirm the launch
of the surveillance cycle under the European Semester as of January 2011 and to endorse the
revised Code of Conduct for the Stability and Growth Pact SCPs as annexed to the
Communication.

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Annex 1: Roadmap
Topic

Action

Expected delivery date

Broader Macroeconomic
Surveillance

Proposal for legislation under Art. 121(6) and
Art. 136 establishing a framework for dealing
with excessive Imbalances

End-September

Thematic Surveillance of Structural
Reforms

Issue specific recommendations to enhance the
implementation of reform measures

Starting with the Annual Policy
Cycle of Europe 2020: first
report to the 2011 Spring
European Council

Fiscal Surveillance: national fiscal
frameworks

Proposal for a Regulation under Art. 126(14)
specifying the minimum requirements for the
design of domestic fiscal frameworks and the
reporting requirements to allow for verification
of compliance

End-September

Fiscal surveillance: increased focus
on public debt and sustainability in
the SGP

Proposals for amending both the preventive
(Regulation 1466/97) and corrective arm of the
SGP (Regulation 1467/97). Revise Code of
Conduct (expenditure rule for implementing
adjustment toward MTO; numerical benchmark
for minimum pace of debt reduction)

End-September

Enforcement of economic
surveillance (sanctions/incentives):
Interest-bearing deposit temporarily
imposed on a euro area Member
State

Proposal for a Regulation under Art. 121(6) and
Art. 136(1)(a).

End-September

Enforcement of economic
surveillance (sanctions/incentives):
deploy the EU budget as additional
leverage

Introduce specific provisions in the legal acts
underpinning
certain
EU
expenditure
programmes

To be included in the
Commission's 2011 proposals
for the next multi annual
financial framework

Proposal for a Regulation under Art. 136(1)(a)
for euro-area Member Sates introducing
sanctions having similar effects

End-September

Revise the Code of Conduct for the Stability and
Growth Pact (SCPs)

Launch of the surveillance cycle
under European Semester as of
January 2011

Setting up of a European Semester

EN

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EN