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The European Union and North America: An Inevitable Partnership? ECSA-C 11th Biennial Conference Comparing the Economic Governance in the New EU Member States - Is the European Semester a Success or Failure? Visnja Samardzija and Ivana Skazlic Institute for Development and International Relations IRMO, Zagreb, Croatia ▪ The paper has been generated from the project “Policy Observatory in Croatia (POLO-Cro28)”, IRMO, Zagreb ▪ Funded by the European Commission through the ERASMUS + programme, Jean Monnet Support to Institutions (2015-2018) Key points ▪ What are the main EU approaches to economic governance in the period after the crisis? ▪ To which extent was the implementation of European Semester successful in new Member States? ▪ To which extent it resulted in the desired impact on growth and stabilization of economies? ▪ How are the new EU member states meeting their country specific recommendations (CSR)? ▪ Mixed experiences of Croatia, Czech Republic, Hungary, Slovakia and Slovenia The reasons behind the European Semester ▪ the main instrument of economic policy coordination at EU level ▪ annual cycle of policy guidance, coordination and monitoring, as a response to the crisis ▪ supports implementation of Europe 2020 Strategy and ensures compliance with economic and fiscal rules in the context of the Stability and Growth Pact (SGP) and the Macroeconomic Imbalance Procedure (MIP) ▪ in operation since 2011 – legal basis Art. 121 of the TFEU + specific provisions of the ‘Six pack’ legislation Three components of the European Semester European Semester EUROPE 2020 STRATEGY (thematic surveillance) Education Employment Environmental and climate protection, energy efficiency R&D Fighting poverty and social exclusion STABILITY AND GROWTH PACT (fiscal surveillance) Preventive arm Deficit <3% GDP Debt <60% Debt >60% which is decreasing Source: European Commission, 'Six pack' and 'Two pack' Regulative Corrective arm Excessive Deficit Procedure MACROECONOMIC IMBALANCE PROCEDURE (macroeconomic surveillance) Preventive arm 1. Alert Mechanism Report 2. In-Depth Reviews Corrective arm Excessive Imbalance Procedure The European Semester at a glance ▪ European Semester introduces ex-ante annual coordination of national economic policies during 6-month period ▪ The Commission conducts in-depth analysis of economic programs and structural reforms of every MS, issues CSRs and monitors their implementation on annual basis ▪ Participation in the European Semester is mandatory for all EU Member States! ▪ During a remaining 6-month period of a ‘National Semester’ the MS implement commonly agreed policies ▪ Sanctions The European Semester for Economic Policy Coordination: Main steps and actors Sept European Commission Council Eurogroup Oct. Opinion on DBPs Nov. Presentation of AGS, AMR and EA recommendation s Surveillance and implementation f CSRs Assessment of DBPs Feb. Mar. In-depth review of imbalances Assessment of implementation of CSRs Apr. May. Debate /resolution on Semester and CSRs Jun. Assessment of NRPs and SCPs Draft CSRs Conclusions on AGS and AMR and adoption of EA recommendations Implementation of CSRs Submission of DBPs by Oct Article 13 conference European Parliament Jan. Adoption of CSRs Policy guidance based on AGS and AMR European Council Member States National Parliaments Dec. Endorsement of CSRs Submission of NRPs and SCPs EPW / Article 13 Conference Debate /resolution(s) on the AGS Economic dialogues with other EU Institutions and member states Source: Hagelstam, K. (2015) At a glance The European Semester: Main steps at the EU level. Economic Governance Support Unit, European Parliament Jul. Implementation of country-specific recommendations (CSRs) by EU Member States, 2012–2014 Source: Gern, K.-J., Jannsen N., Kooths, S. (2015) Economic policy coordination in the euro area under the European Semester. Kiel Institute for the World Economy. Available at: http://www.europarl.europa.eu/committees/en/ECON/home.html Implementation of country-specific recommendations (CSRs) by EU Member States, 2015 Source: Hradiský, A. (2016) At a glance Implementation of 2015 CSR. Economic Governance Support Unit, European Parliament Addressing the weaknesses of implementation: Streamlined European Semester (2015) - improving frameworks and mechanisms - publishing CSRs for the euro area at the begining of the cycle; - lowering the number and scope of CSRs; focus on priorities - greater emphasis on employment and social performance; - enhancing a democratic dialogue - supporting reforms from ESI Funds and technical assistance Examples of five new EU Member States ▪ Croatia, Czech Republic, Hungary – non Eurozone members ▪ Slovakia, Slovenia – Eurozone members ▪ New EU members, 5th and 6th enlargement ▪ Similar economic and social challenges, geographical proximity ▪ Covered by or passed through Excessive Deficit Procedure The government deficit as proportion of GDP in selected EU Member States(in %) Source: Eurostat data General government gross debt as proportion of GDP in selected EU Member States (%) Source: Eurostat data Excessive Deficit Procedure (EDP) in selected EU Member States – an overview EU MS Czech Republic Hungary Slovakia Slovenia 2009 EDP opened EDP opened in 2004 EDP opened EDP opened Croatia 2010 2011 2012 2013 2014 EDP closed 2015 2016 EDP closed EDP closed EDP opened EDP still ongoing EDP still ongoing NOTE: In 2016 the EDP covers 9 countries. The EDP was closed for 17 countries in the past years, while 2 countries are not covered by EDP at all. Source: European Commission The status of selected new EU Member States under the Macroeconomic Imbalances Procedure of (MIP) 2012-2016 Year No imbalances Imbalances* 2012 Czech Republic Slovakia Czech Republic Slovakia Czech Republic Slovakia Czech Republic Slovakia Czech Republic Slovakia Hungary Hungary Slovenia Hungary 2013 2014 2015 2016 Hungary Hungary Slovenia Slovenia Excessive imbalances* Excessive imbalances procedure - Slovenia - Croatia Slovenia Croatia - Croatia - - NOTE: In 2016, out of 18 countries identified for in-debt review, 12 countries experience imbalances. EIP has not been initiated yet Source: http://ec.europa.eu/economy_finance/economic_governance/macroeconomic_imbalance_procedure/index_en.htm Number of CSRs under the SGP, MIP and Europe 2020 processes, in 2015 Source: Bénassy-Quéré , A. (2015) Economic policy coordination in the euro area under the European Semester. Available at: http://www.europarl.europa.eu/committees/en/ECON/home.html Comparative overview of CSRs under European Semester in five selected countries (2015) Country-specific recommendations 2015 Croatia Czech Republic Hungary Slovakia Slovenia Shaded cells in the table mark the field for which the selected Member State received recommendations. Source: European Commission, http://ec.europa.eu/europe2020/pdf/csr2015/csr2015-overview-table_en.pdf Administrative modernization and rule of law Social inclusion Administration Poverty and social inclusion Education Education and skills Innovation and business environment Product and services market Services and network industries Wage-setting Labor taxation Labor market Labor market Housing and private debt Financial sector Banking and access to finance Healthcare system Pension system Taxation Public finances EU Member State Public finances and welfare systems Implementation of the 2015 CSRs under the European Semester in five selected Member States EU/Country level Full/Substantial Some Progress Progress No/Limited Progress Not yet Assessed Total Total CSR to EU-28 4 42 49 7 106 Czech Republic 0 3 1 - 4 Croatia 0 1 5 - 6 Hungary 0 1 3 1 5 Slovenia 1 2 1 - 4 Slovakia 0 1 3 - 4 Source: Hradisky, Martin (2016). European Parliament. Economic Governance Unit. At a Glance. Implementation of the 2015 County Specific Recommendations. March 4, 2016 Conclusions ▪ Accomplishment of the European Semester: contribution to predictability and transparency of economic policies in the EU ▪ CSRs - the most important part for delivering reforms, but implementation is modest / low ▪ Eurozone members - stronger CSRs implementation ▪ Better implementation while under a financial assistance program; due to market pressure and/or due to high unemployment ▪ Normalisation of situation often „softens” reforms ▪ Political will of national authorities to implement reforms depends on eventual domestic consequences ▪ Implementation of CSRs varies with the electoral cycle Conclusions ▪ Impact of recent modifications of the European Semester? Not visible yet… ▪ Support for facilitating implementation of reforms through EU Funds and technical assistance ▪ Existing shortcomings are strong argument for further improvements of the European Semester in order to increase efficiency ▪ Need to identify more clearly articulated priorities at European level, raise awareness