When European Semester met coronavirus: a refocused Spring Package
by Dolores Utrilla
Recent history demonstrates that economic crises give momentum to complex socio-economic governance architecture arrangements, aimed at improving coordination of national economic policies without transferring full sovereignty to the EU level. The European Semester is clear proof of this. First introduced in 2010 in the wake of the financial and sovereign debt crises, and revamped in 2015, it is called on to be one of the crucial elements of the strategy for recovery from the crisis caused by the COVID-19 outbreak.
The European Semester is a multi-annual exchange mechanism between the European Commission and the Member States, providing a framework for the coordination of economic policies across the EU with the aim to achieve the EU’s targets, both in terms of the Annual Sustainable Growth Strategy and of the Stability and Growth Pact. It allows the Commission to provide country-specific guidance to Member States on socio-economic policies, thereby influencing legislation at national level in the field of public expenditure, fiscal policy, employment, education and social care.
In a nutshell, the mechanism functions as follows. Each year the Commission conducts a detailed analysis of each Member State’s plans for budget, macroeconomic and structural reforms, and issues a set of country-specific recommendations for the next 12-18 months, backed up in some cases by possible financial sanctions. The Commission proposals are subsequently endorsed and formally adopted by the Council. Policy decisions in response to the country-specific recommendations are adopted by the respective national governments, based on the actions they deem appropriate. Although the Semester involves no legal transfer of sovereignty from the Member States to the EU level, it has given the EU institutions a more visible and authoritative role than ever before in monitoring, scrutinizing and guiding national economic, fiscal and social policies, especially within the euro area (as explained here by Amy Verdun and Jonathan Zeitlin).
Yesterday 20 May, the European Commission presented its European Semester Spring Package (ESSP), which, not surprisingly, has been reoriented to address the need to mitigate the socio-economic impact of the coronavirus crisis and to facilitate economic recovery, while keeping in sight the longer-term priorities (which include green transition and digital transformation). The ESSP includes: (i) Country-specific recommendations for the 27 Member States and the United Kingdom (which, according to the provisions of the Withdrawal Agreement on the transition period, will remain part of the European Semester process until 31 December 2020); (ii) a communication on the country-specific recommendations; (iii) monitoring reports under Article 126(3) TFEU; (iv) the sixth enhanced surveillance report for Greece; and (v) post-programme surveillance reports for Spain and Cyprus. All these documents must be read taking into account the recent activation of the general escape clause, which led to a temporary suspension of the EU’s fiscal rules to allow Member States to support their economies through the crisis.
(i) The country-specific recommendations
The country-specific reports reflect the reorientation of the ESSP to address the challenges posed by the coronavirus outbreak. Overall, they recommend that Member States focus both on the immediate measures to tackle and mitigate the socio-economic impact of the pandemic and on the measures to restart the economic activity in a safe way. Urgent priorities concern investment in health-related issues, income support to affected workers, liquidity to firms (in particular small and medium-sized enterprises, SMEs) and measures to support a symmetric recovery and preserve the integrity of the internal market.
Concerning fiscal measures, the recommendations are qualitative, departing from the budgetary requirements that would normally apply, as a consequence of the activation of the escape clause. In particular, Member States are invited to take all necessary measures to effectively address the pandemic, sustain the economy and support the ensuing recovery. When economic conditions allow, fiscal policies should aim at achieving prudent medium term fiscal positions and ensuring debt sustainability, while enhancing investment.
(ii) The communication on the country-specific recommendations
By this communication, the Commission calls on the European Council to endorse, and on the Council to adopt, the country-specific recommendations for 2020-2021. It also calls on Member States to implement them fully and in a timely manner, and to urgently adopt the new Multiannual Financial Framework and to prepare the relevant programmes on the basis of the country-specific recommendations.
The Commission recalls that ensuring effective economic policy coordination through the European Semester is of utmost importance to minimise the negative economic and social consequences of the crisis, any fragmentation of the internal market, and significant economic divergence and imbalances within the EU. Specific mention is made of the need to reinforce cooperation between social services, healthcare and long-term care through the EU. It also warns that the functioning of the internal market in services is exposed to disproportionate regulatory restrictions, particularly in retail and construction.
(iii) The reports under Article 126(3) TFEU
The Commission has also adopted reports monitoring compliance with deficit and debt criteria in all Member States except Romania, in respect of which an excessive deficit procedure is already ongoing.
According to Article 126(3) TFEU, the Commission may prepare these reports for Member States at risk of incurring an excessive deficit. In all cases apart from Bulgaria, the Commission concludes that the deficit criterion of the Treaty is not complied with. However, in view of the exceptional uncertainty as regards the macroeconomic and fiscal impact of the pandemic, the Commission considers that no decision should be taken at this moment on whether to place Member States under the excessive deficit procedure.
(iv) The Surveillance report for Greece
The ESSP also includes the sixth enhanced surveillance report for Greece. The report concludes that, considering the extraordinary circumstances posed by the Coronavirus outbreak, Greece has taken the necessary actions to achieve its due specific reform commitments. According to Commissioner for Economy Paolo Gentiloni, it is expected that this paves the way for a positive decision by the Eurogroup on the next tranche of debt relief measures worth 748 million euros.
(v) The post-programme surveillance reports for Spain and Cyprus
Lastly, the ESSP includes the reports containing the findings of the thirteenth post-programme surveillance mission to Spain and of the eighth post-programme surveillance mission to Cyprus. Both reports take into account the exceptional circumstances posed by the COVID-19 outbreak.
In the case of Cyprus, the Commission considers that the country retains the capacity to service its ESM debt, but that challenges have increased as a result of the pandemic. The report stresses that the medium-term Cyprus’s debt trajectory remains sensitive to macroeconomic and fiscal performance shocks, as well as existing vulnerabilities in the financial system.
In respect of Spain, the Commission concludes that the country retains the capacity to service its ESM debt. According to the report, the resilience of Spain’s economy and financial sector upon entering the COVID-19 crisis and the support provided by the Eurosystem, as well as Spain’s enhanced debt profile, reduce the vulnerabilities that stem from the increase in gross government debt. It also highlights that recent debt auctions have shown continued investor trust in Spain’s economy and sovereign debt in spite of the COVID-19 outbreak.
Dolores Utrilla is Assistant Editor at EU Law Live and Associate Professor at the University of Castilla-La Mancha.