Webinar: Get ready for the EU Economic Governance Review

1st December, 2 to 3 pm (CET)

Isabelle Brachet (CAN Europe) & Katy Wiese (EEB)

Question 1: 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?

The key issue here is that there is likely to be a tension between meeting important social and environmental goals that require public spending and investment and meeting strict debt rules in the current framework.

→ The new rules need to serve societal goals rather than being an end in themselves - Cf care economy, wellbeing economy, employment, climate action, nature protection, social rights, etc. 

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→ GDP growth should not be the main objective

→ No return to austerity

→ Insufficient climate and environmental protection generates massive risks for our economy and the balance of national budgets, so ignoring them makes public finance unsustainable

Question 2: How to ensure responsible and sustainable fiscal policies that safeguard long-term sustainability, while allowing for short-term stabilisation?

Short-term stabilisation means that Member states should have the room to spend to respond to crisis (e.g. energy price increase, sudden unemployment rise due to covid, etc)

“responsible and sustainable” and “long-term sustainability” are not about environmental or social sustainability here. The EC means here that the public debt can be repaid

→ There is a need to reassess what constitutes “responsible and sustainable” fiscal policy. Fiscal policy needs to serve societal goals such as climate action and an economy that works for people and planet.

→ The current EU fiscal framework is indifferent to the quality of spending (i.e. spend for what?): it  needs to be designed to ensure that EU and national budgets don’t support activities that harm the climate and the environment.

→ The EC says we need to invest an additional 520 bln euros every year to achieve the objectives of the European Green Deal. The new framework needs to incentivize such investments.

Question 3: 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?

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How can the procedure the Commission uses to monitor and control debt risks take into account other important climate, environmental and social challenges and risks?

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→ This big surveillance machine focuses almost exclusively on macroeconomic indicators (GDP growth, budget deficits, debt levels, account balances etc.). It needs to be reoriented towards wellbeing, environmental and social goals, while respecting national democratic processes

→ There also needs to be mechanisms/conditionalities/criterias to ensure that the green and social investments benefitting from a favourable treatment (re. EU deficit/debt rules) really contribute towards sustainability and long-term positive change to avoid greenwashing as well as misuse of public money.

Question 4: How can one simplify the EU framework and improve the transparency of its implementation?

The EC acknowledges that the current fiscal framework with over 10 regulations, directives and articles in the Treaty is overly complex, intransparent, technical and difficult to understand and verify by non-experts let alone citizens. NB: this is in part because the rules were adapted to the actual specific contexts of member states, which was needed...

→ Rules must be based on indicators that are directly verifiable, accessible to an open and democratic debate and support green & social transition.

→ Decision-making processes of budgetary guidelines and economic policies need to be more democratic and made public to be better understood by citizens

→ There needs to be a stronger involvement of civil society in the different processes such as the European Semester process on the EU as well as Member State level.

we shouldn't "simplify" the rules in the sense of stricter enforcing of the "one size fits all-rules": The goal should be to take country specific situations more into consideration

Question 6: In what respects can the design, governance and operation of the RRF provide useful insights in terms of economic governance through improved ownership, mutual trust, enforcement and interplay between the economic and fiscal dimensions?

→ The EU funding for Member States to invest in their recovery from covid-19 was partly directed towards climate action, which is welcome. However, greening EU funds is not sufficient: national budgets of Member States need to support climate and environmental action as well. The future fiscal rules need to encourage that.

The RRF is the big injection of funds from EU to Member States to respond to covid, with a big EU loan for the 1^st time

→ The injection of funds often did not pay sufficient attention to fighting inequality, including gender inequality. The future EU fiscal rules need to encourage reforms and investments that are socially just, including in the field of digitalisation.

→ The plans under the RRF were bottom-up, designed at national level, which is important for democratic ownership. But CSOs participation was not sufficient.

Question 8: How can the framework ensure effective enforcement? What should be the role of pecuniary sanctions, reputational costs and positive incentives?

So far, the European common rules regarding public deficit and debt have not been systematically enforced. Same for EC recommendations to Member States under the Semester.

In theory, sanctions are possible, but politically they are so difficult… So were never used.

→ To strengthen compliance, the new rules need to be perceived as legitimate: If the common rules are perceived as just, transparent, respect democratic choices made at national level, and contribute to the achievement of environmental and social goals, they will be naturally better complied with.

→ We could imagine positive conditionalities: For example, Member States would be allowed to spend more than what is allowed under the current debt and deficit rules, on the condition that national policies and investments contribute – and never contradict - to the objectives of the Paris Agreement and the European Green Deal.

Question 11: Considering how the COVID-19 crisis has reshaped our economies, are there any other challenges that the economic governance framework should factor in beyond those identified so far?

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The EC identified a number of challenges exacerbated by the covid-19, e.g. the public and private debt has been rising; social impacts have been uneven

→ There has been a rise in socio-economic inequality, therefore the future EU framework needs to better take into account people’s economic and social rights

→ The pandemic showed how care work is crucial, whether unpaid care work performed at home, mostly by women, during lock-downs or when relatives get sick and need to be taken care of; or in hospitals, health care centers, institutions for the elderly, schools and high education which got seriously disrupted in most Member States: The new EU economic governance needs to support the care economy, i.e. well resourced public services

→ Support to the economy needs to only be for climate and nature compliant activities

Question 5: How can surveillance focus on the Member States with more pressing policy challenges and ensure quality dialogue and engagement?

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Other questions:

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Question 7: Is there scope to strengthen national fiscal frameworks and improve their interaction with the EU fiscal framework?

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Question 9: In light of the wide-ranging impact of the COVID-19 crisis and the new temporary policy tools that have been launched in response to it, how can the framework – including the Stability and Growth Pact, the Macroeconomic Imbalances Procedure and, more broadly, the European Semester – best ensure an adequate and coordinated policy response at the EU and national levels?

Question 10: How should the framework take into consideration the euro area dimension and the agenda towards deepening the Economic and Monetary Union?

What do you think? Some input from participants in December 1st workshop

Why green spending would benefit from a more favourable treatment than others, and what if democratic processes at national level decide to prioritise spending on other issues?

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The ECB/monetary policy should play a bigger role. The ECB could “cancel” the debt.

The RRF shows the fiscal strength that Europe has when it works together

How is private debt taken into account when analysing macro-economic imbalances?

Thank you very much.

In case you have more questions please do not hesitate to reach out to ous:

Isabelle Brachet (isabelle.brachet@caneurope.org)

Katy Wiese (katharina.wiese@eeb.org)