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EU Economic governance review: Q&A

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The Commission has presented a Communication reviewing the EU’s Economic governance framework. Specifically, this includes an assessment of the application of the six- and two-pack legislation.

The Communication also sets out how the Commission plans to consult interested parties to receive their views on the functioning of the economic framework so far and the possible ways to enhance its effectiveness.

Why is the Commission presenting this review now?

The legislation in the six-pack and two-pack requires the Commission to review and report on the application of the legislation every five years.

The start of a new political cycle at European level is an opportune moment to assess the effectiveness of the current rules.

The economic context has changed considerably since these measures were introduced in response to the vulnerabilities exposed by the economic and financial crisis. Meanwhile, Europe is aiming to become the world’s first climate-neutral continent and to seize the new opportunities of the digital age, as set out in the Annual Sustainable Growth Strategy

What are the main findings of the review?

The review considers the effectiveness of the different surveillance elements as regards the achievements of the three key objectives, namely:

        ensuring sustainable government finances, growth and avoiding macroeconomic imbalances;

        enabling closer coordination of economic policies; and

        promoting convergence of economic performances of the Member States.

The review has revealed strengths as well as possible areas for improvement.

The surveillance framework has supported the correction of existing macroeconomic imbalances and the reduction of public debt. This, in turn, has helped to create the conditions for sustainable growth, strengthened resilience and reduced vulnerabilities to economic shocks.

The implementation of recommended policies by Member States has contributed to the gradual strengthening of the EU economies and to job creation.

The establishment of a common budgetary timeline and the policy guidance issued on the basis of Member States’ draft budgetary plans has led to a closer coordination of fiscal policies within the euro area.

The surveillance framework has also promoted the gradual convergence of Member States’ economic performances. All Member States have returned to growth since the economic and financial crisis and experienced declining unemployment rates. Public finances have also improved, with public deficits and debt levels falling.

At the same time, potential growth has not recovered to its pre-crisis level and there has been persistently low inflation. Public debt levels remain high in some Member States. Reform efforts are waning. Member States’ economies remain vulnerable to an economic slowdown with risks of spill-overs that would affect the functioning of the euro area as a whole.

The fiscal stance at Member State-level has frequently been pro-cyclical. The composition of public finances has not become more growth-friendly, with Member States consistently opting to increase current expenditure rather than protect investment.

The ability to steer the fiscal stance for the euro area as a whole rests exclusively on coordination of national fiscal policies in the absence of a central stabilisation capacity.

The fiscal framework has grown excessively complex. This complexity has resulted in those rules becoming less transparent, hampering predictability, communication and political ownership.

What are the review’s findings on the Macroeconomic Imbalance Procedure?

The MIP has widened and complemented the scope of economic surveillance and raised awareness about economic challenges beyond fiscal policy.

It has allowed a greater focus on macro-structural and macro-financial issues relevant to macroeconomic stability, such as external imbalances, productivity, competitiveness, the housing market and private indebtedness.

The MIP has helped to focus national debates on policy action. It has also helped to deepen the dialogue between the EU institutions and national authorities about key economic challenges and priorities. The report finds that implementation of country-specific recommendations linked to the MIP was stronger compared with other recommendations, and that imbalances accumulated during the crisis are receding. However, implementation has waned in more recent years. The review also finds that the MIP has been more successful in reducing current account deficits than it has been in reducing persistent and large current account surpluses.

The reports concludes that the MIP has complemented other surveillance instruments. In particular, it provided the basis for prioritising policies not dealt with by the SGP, but relevant to public finances. This is the case for policies helping competitiveness and the growth potential in high-debt countries. 

Will the Commission come forward with any new proposals on the basis of this review?

The next step is to engage openly with interested parties to seek their views on how to strengthen the economic governance framework.

The Commission will consider all those views and on that basis complete its internal reflections on the scope for possible future steps by the end of 2020.

When and how does the Commission plan to engage with the other institutions and interested parties on the functioning of EU fiscal rules?

The Commission looks forward to an inclusive debate, involving interested parties including the European Parliament, the Council, the European Central Bank, the European Economic and Social Committee, the Committee of the Regions, national governments and parliaments, national central banks, independent fiscal institutions, national productivity boards, social partners, as well as academic institutions.

This engagement will take place through various means including dedicated meetings, workshops and an online consultation platform.

These consultations will take place over the first half of 2020.

The debate will consider, among others, the following questions:

How can the framework be improved to ensure sustainable public finances in all Member States and to help eliminate existing macroeconomic imbalances and avoid new ones arising?

How to ensure responsible fiscal policies that safeguard long-term sustainability, while allowing for short-term stabilisation?

What is the appropriate role for the EU surveillance framework in incentivising Member States to undertake key reforms and investments needed to help tackle today and tomorrow’s economic, social, and environmental challenges while preserving safeguards against risks to debt sustainability?

How can one simplify the EU framework and improve the transparency of its implementation?

How can surveillance focus on the Member States with more pressing policy challenges and ensure quality dialogue and engagement?

How can the framework ensure effective enforcement? What should be the role of pecuniary sanctions, reputational costs and positive incentives?

Is there scope to strengthen national fiscal frameworks and improve their interaction with the EU fiscal framework?

How should the framework take into consideration the euro area dimension and the agenda towards deepening the Economic and Monetary Union?

Within the context of the European Semester, how can the SGP and the MIP interact and work better together, so as to improve economic policy coordination among Member States?

What is the link between the review and the European Green Deal?

This review was conducted in the context of the ambitions set out in the European Green Deal to make Europe the world’s first climate-neutral continent.

This includes re-assessing the appropriateness of the current flexibility clauses in terms of their scope and eligibility, in order to facilitate the right type and level of investment while preserving debt sustainability.  

‘Green budgeting’ could also play a role in improving the quality of public finances and helping to deliver on the objectives of the European Green Deal. However, it is too soon to say whether the review will lead to the development of such tools.

The Commission will consider the input from interested parties in its reflections on the scope of any possible future steps in this regard. 

Does the existing economic governance framework facilitate green investments?

The EU’s fiscal rules aim to ensure the credibility and sustainability of public finances, thereby ensuring financial stability and smooth access to financial markets at low interest rates. These are necessary factors to ensure sustainable public investment over the medium term.

In principle, the Stability and Growth Pact (SGP) is neutral as regards to the composition of public revenue and expenditure, focusing on deficit and debt. Member States are therefore free to prioritise their public expenditures in favour of investment. The rules recognise in several instances the importance of protecting investment. They also provide support for investment through the so-called “investment clause” and other flexibility provisions provided for in the Commonly Agreed Position on Flexibility contained within the SGP.

What is the link between the review and the Commission’s agenda to further deepen Europe’s Economic and Monetary Union (EMU)?

Our deep economic links and interdependence mean that sound economic and fiscal governance are critically important to the Economic and Monetary Union. The governance framework needs to ensure the sustainability of public finances, support the strength and resilience of Member State economies and promote effective policy coordination. 

At the same time, further EMU reforms such as the introduction of a stabilisation capacity of appropriate size would allow fiscal policy to contribute more to macroeconomic stabilisation at the level of the euro area as a whole.

The completion of the financial union (Banking Union and Capital Markets Union) could facilitate market discipline and allow to simplify the design of an effective fiscal surveillance framework.

Does the review include any recommendations on how to reduce the complexity of the EU’s fiscal rules?

In general the review does not include any recommendations as it is an assessment  of how the rules have worked so far.

The review acknowledges that the current EU fiscal governance framework has grown excessively complex. This complexity results from the framework pursuing multiple objectives and the need to cater for a wide variety of evolving circumstances, including by the use of flexibility, in a context of divergences of views among Member States. It is reflected in a very detailed codification, encompassing several operational indicators of which a number are non-observable and frequently revised, as well as a variety of escape clauses.

As a result, the fiscal rules have become less transparent, hampering predictability, communication and political ownership.

To what extent does the review take on board the recent reports from the European Court of Auditors and the European Fiscal Board?

This reviewdraws on the assessment of the EU fiscal rules by the European Fiscal Board, as well as on existing reports and views of other interested parties, such as Member States, the European Parliament, the European Court of Auditors on the SGP and the MIP, and academia.

Those references are made explicit in the accompanying staff working documents.

EU Politics

EU Interreg programme celebrates 30 years of bringing citizens closer together

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The year 2020 marks 30 years since the start of Interreg, the EU’s emblematic programme that aims at encouraging territorial cooperation between border regions. In light of this celebratory year, Commissioner for Cohesion and Reforms, Elisa Ferreira,issued the following statement:

Interreg is a programme that is very dear to my heart. As a unique instrument of cooperation, supported by cohesion funding, Interreg allows regions and countries to work together to solve common challenges. Interreg projects are concrete examples that borders do not have to be barriers, but can be an opportunity for growth and successful cooperation. Over the past 30 years, and thanks to numerous projects supported by the EU, Interreg has brought the more than 170 million Europeans living in border regions closer together, improved their lives, and created new opportunities for cooperation.

The 30 year celebration of Interreg happens in a crucial time of the EU’s history. As we face serious global and local challenges, we need to regain citizens’ trust and ensure we deliver. Interreg has been acting now for 30 years to leave no one behind and to build Europe brick-by-brick. The intention is to continue this mission but also to use this celebrative occasion to question, to re-think, and to give a new breath to what we consider as a fundamental value in the European Union: the spirit of cooperation, driven by the firm belief that we are stronger together.”

Background

Launched in 1990, the European Territorial Cooperation (ETC), better known as Interreg, is an emblematic Cohesion Policy programme that provides a framework for the implementation of joint actions and policy exchanges between national, regional and local actors from different Member States. The overarching objective of European Territorial Cooperation (ETC) is to promote a harmonious economic, social and territorial development of the Union as a whole. Interreg is built around three strands of cooperation: cross-border (Interreg A), transnational (Interreg B) and interregional (Interreg C).

Five programming periods of Interreg have succeeded each other: INTERREG I (1990-1993) – INTERREG II (1994-1999) – INTERREG III (2000-2006) – INTERREG IV (2007-2013) – INTERREG V (2014-2020).

The Interreg cooperation programmes cover the entire European continent with a total budget of over €12 billion, including EU and Member States’ contribution, during the 2014 – 2020 programming period.

The Interreg 30 year campaign will roll out throughout 2020 under the themes: neighbours, green and youth. The campaign will take stock of the past achievements and look forward to what can be done more and better in the future.

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EU Politics

Future ACP-EU Partnership

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What is the Cotonou Partnership Agreement between the EU and African, Caribbean and Pacific countries?

The Cotonou Partnership Agreement is the legal framework governing the relations between the EU and 79 countries in Africa, the Caribbean and the Pacific (ACP). It is one of the oldest and most comprehensive frameworks of cooperation between the EU and third countries. Signed in 2000 and due to expire on 29 February 2020, the Agreement unites more than one hundred countries (EU member states + 79 ACP countries) and represents over 1.5 billion people stretched over four continents.

The EU-ACP partnership focuses on the eradication of poverty and inclusive sustainable development for ACP and EU countries. It is divided into three key action areas: development cooperation, political dialogue and trade.

Why does it need to be modernised and why is this important?

The world has changed considerably since the Cotonou Agreement was adopted almost two decades ago in 2000. Global and regional contexts (in Europe, Africa, the Caribbean and the Pacific) have evolved significantly – and so have the common global challenges and opportunities to be grasped. Thus, the core objectives of the partnership have to be reviewed to adapt to the new realities. The EU is therefore seeking a comprehensive political agreement, setting a modern agenda framed by the internationally agreed sustainable development roadmaps (the UN 2030 Agenda, the Sustainable Development Goals (SDGs), the Addis Ababa Action Agenda, as well as the Paris Agreement, the New EU Consensus on Development, the Global Strategy on EU Foreign and Security Policy, etc.). The coming months will be crucial, as the EU is about to enter a new era in its relationship with ACP countries. The negotiations will pave the way for new dynamics and cooperation going beyond the traditional development dimension.

What are the potential benefits? What change will a new era of EU-ACP relations bring for people?

Building on the lessons learned during four decades of cooperation and having assessed the challenges and possibilities in the new context, the future agreement can bring new opportunities. By setting up a powerful political alliance, the EU and its partners will be in a position to develop solutions to the challenges faced in each region. These include growth and job creation, human development and peace, migration and security issues. Many of today’s challenges of a global dimension require a concerted, multilateral approach, in order to achieve tangible results. A good example was the successful coalition we set up in 2015 that ultimately led to the conclusion of the Paris Agreement on climate change. This shows that the ACP-EU partnership has the power to lead responses to global challenges. If we join forces, we can form a majority worldwide, as the EU and ACP countries represent more than half of the seats at the United Nations. Together, we can make a difference and set a global agenda in international forums.

Under the negotiating directives, the EU’s strategic priorities include:

– Speeding up progress towards meeting the goals of UN 2030 Agenda for Sustainable Development and eradicating poverty in all its dimensions;

– Moving inclusive, sustainable and economic development forward;

– Building stronger states and societies (through peace, security, justice and fighting against terrorism);

– Supporting private sector development and enhancing regional integration;

– Promoting and upholding human rights, fundamental freedoms, democracy, the rule of law and good governance;

– Managing mobility and migration issues;

– Supporting the transition to low greenhouse gas emissions and developing climate resilient economies;

– Ensuring environmental sustainability and sustainable management of natural resources.

How do EU and ACP countries intend to achieve these objectives?

Through a new structure better adapted to each region’s needs.

The proposed new structure consists of a combination of:

– A common foundation agreement (containing values & principles common to the EU and Africa, the Caribbean, and the Pacific, and the overarching objectives) at EU-ACP level;

– Three strengthened regional partnerships (EU-Africa, EU-Caribbean, EU-Pacific), in the form of specific protocols. These three strong, action-oriented pillars will enable the relevant actors to participate in the negotiation, governance and implementation of the future partnership while respecting the subsidiarity principle.

These three “regions” will manage the flexible regional partnerships themselves, providing for a greater role for the relevant regional organisations in the establishment and management of the future regional partnerships.

Our new partnership can act as a powerful tool to strengthen our relations with the countries as a group, as well as with each “region” (namely Africa, the Caribbean and the Pacific), and to focus on key tailored priorities. This will also allow for the further development of our “continent-to-continent” relationship with Africa.

What are the specific priorities proposed towards the African region?

The priorities proposed by the European Union for the EU Africa partnership are to focus on achieving peace and stability, managing migration and mobility, consolidating democracy and good governance, unleashing economic opportunities, reaching human development standards, and addressing climate change. The proposal is fully in line with the outcome of the African Union-European Union Summit held in November 2017 in Abidjan.

What is the link between the future ACP-EU Partnership and the new Africa-Europe Alliance for Sustainable Investment and Jobs announced by President Juncker?

The new Africa-Europe Alliance for Sustainable Investment and Jobs aims to bring our continents closer together by promoting a substantial increase in private investment from both Europeans and Africans, helping improve the business environment, boosting trade and job creation, while supporting education and skills that will benefit European and African people alike.

It will therefore contribute to the economic agenda of the African regional pillar of the future ACP-EU Partnership.

Increasing investment in Africa, especially in strategic sectors where the European Union has a value added, is among the EU’s key priorities. The new Africa-Europe Alliance for Sustainable Investment and Jobs is not a stand-alone initiative. It is part of the wider set of strategic frameworks and a crucial element to deliver on the AU-EU Abidjan Summit Declaration.

What are the specific priorities proposed for the Caribbean region?

The key areas of cooperation for the regional partnership with the Caribbean include addressing climate change, vulnerability, citizen security, good governance, human rights, human development and social cohesion. In the same way, fostering inclusive growth, deepening regional integration and ocean governance as well as reducing natural disasters effects are also high on the agenda.

What are the specific priorities proposed for the Pacific region?

The large number of island nations and their huge maritime territories make the Pacific countries an important player for the EU in tackling global challenges, particularly with respect to their vulnerability to natural disasters and climate change. Other priorities should focus on maritime security, sustainable management of natural resources, good governance, human rights, especially gender equality, and inclusive sustainable growth.

Will regional organisations have a role in the post-Cotonou partnership?

The growth of regional bodies has been a significant trend since the 1990s. Across the ACP countries, numerous regional organisations have emerged. Some have become key actors in international relations. The African Union, the Pacific Islands Forum and Cariforum especially have strengthened their respective roles, as have sub-regional organisations in Africa, including ECOWAS and SADC. The EU and the ACP countries will continue to rely on a multi-level system of governance that allows taking action at the most appropriate level (national, regional, continental or ACP), in line with the principles of subsidiarity and complementarity.

Will the civil society and private sector have a role in the agreement?

The EU values structured dialogue and is in favour of a multi-stakeholder approach that includes the private sector, civil society, and local authorities. These partners should be able to work in an enabling environment and have the opportunity to make a meaningful contribution to national, regional and global decision making.

Observer status

The Agreement should include a provision establishing that third parties that subscribe to the values and principles underpinning the Agreement and have an added value in fostering the specific objectives and priorities of the Partnership may be granted observer status.

What will change in terms of funding?

Discussions on the financial implications will be held at a later stage, given that the EU financial instruments are currently under negotiation as part of the European discussions on the next EU Multiannual Financial Framework (MFF) for 2021-2027. In this context, the EU has proposed a new single instrument for external action, superseding a number of existing external financing instruments. This also includes the European Development Fund (EDF) that currently provides support to African, Caribbean and Pacific countries.

What if the Cotonou Agreement expires before negotiations are concluded?

Parties have agreed on transitional measures to extend, without any change, the application of the Cotonou Agreement until December 2020. These measures will ensure the legal and political continuity of the ACP-EU Partnership. This is in line with the validity of the 11th EDF, which also expires in December 2020.

How long will the new agreement last?

The future EU-ACP partnership would be concluded for an initial period of 20 years. Three years before its expiry, a process should be initiated to re-examine what provisions should govern future relations. Unless a decision on terminating or extending the agreement is taken by the Parties, the agreement will be tacitly renewed for a maximum period of 5 years, until new provisions or adaptations have been agreed upon by all Parties. The agreement should also include a “rendez-vous” clause for a comprehensive revision of the strategic priorities, after the expiration of the UN 2030 Agenda.

Will Brexit affect the post-Cotonou agreement?

The EU will soon open talks over the future relationship with the UK, thus we can’t predict if and how ACP-EU relations would be impacted at this stage.

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EU Politics

New ACP-EU Partnership: Moving forward towards a new partnership fit for the future

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Today, new impetus was given to the post-Cotonou negotiations on a new agreement between the EU and African, Caribbean and Pacific countries (ACP) as the two chief negotiators agreed on the way forward.

Commissioner for International Partnerships and the EU’s new chief negotiator, Jutta Urpilainen, said: “I am personally committed to accelerate our talks to try to reach a final agreement soon. We made real progress in today’s meeting to move forward to a new partnership fit to address today’s realities, meet our mutual needs and champion our common vision of the world, solidarity and progress. I am honoured to take up this function as the chief negotiator for a treaty covering over half of the of the world’s nations”.

Robert Dussey, Minister of Foreign Affairs, African Integration and Togolese Abroad, the ACP’s Chief Negotiator and Chair of the Ministerial Central Negotiating Group, said: “We are very pleased to have concluded the first working session with the new EU chief negotiator, Ms Urpilainen. The atmosphere was cordial, the meeting was productive and the discussions were frank and direct. The parties noted significant progress made both on the common foundation and on regional protocols.” Minister Robert Dussey continued: “Regional protocols that focus on the needs and aspirations of African, Caribbean and Pacific countries will ensure that the new agreement is inclusive and at the same time sensitive to the diversity of the ACP group.

Extending the Cotonou agreement until December 2020

The Cotonou Agreement is a comprehensive association agreement, covering the EU-ACP relations. It is due to expire on 29 February 2020. As negotiations on the future agreement are still under way, parties have agreed on transitional measures to extend, without any change, the application of the current Cotonou Agreement until December 2020. Thus, the legal and political continuity of the ACP-EU Partnership will be ensured.

Progress made and next steps

Meeting with the ACP and EU negotiation teams, the two chief negotiators have made substantial progress in relation to the regional partnerships. Both sides have agreed on key chapters of the regional partnerships within the future ACP-EU agreement. In the weeks to come, EU and ACP teams will carry on the negotiations, merging proposals and fine-tuning the text of the agreement. These include the general provisions, means of cooperation, institutional framework and final provisions.

Background

Negotiations on a new ACP-EU Partnership were launched in September 2018, in New York, in the margins of the United Nations General Assembly.

The initial rounds of talks mainly focused on the “common foundation”, which sets out the values and principles that bring the EU and ACP countries together and indicates the strategic priority areas that both sides intend to work on together.

The future agreement is due to include specific, action-oriented regional partnerships focusing on each region’s needs. Consultations on the regional partnerships were concluded in spring 2019.

The future ACP-EU Partnership will serve to further cement the close political ties between the EU and ACP countries on the world stage. Together, the ACP countries and the EU represent over 1.5 billion people and more than half of the seats at the United Nations.

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