The EU economy after COVID-19: implications for economic governance
ECON-VII/020
The EU economy after COVID-19: implications for economic governance
This opinion is based on the European Commission Communication put forward on 19 October 2021 and entitled: The EU economy after COVID-19: implications for economic governance (COM(2021)662 final). This is a revised opinion, due to the fact that the Communication is a relaunch of the review of economic governance exercise, which was originally started in February 2020 and had been the basis for the CoR opinion "Economic governance review" by rapporteur Elio Di Rupo (BE/PES), which was adopted in Plenary in December 2020.
After the Communication of February 2020, the Commission initially planned to collect feedback and engage with stakeholders in the first half of 2020 before coming forward with next steps by the end of that year. However, the coronavirus pandemic and its massive impact in the EU in general and on public finances in particular led to the economic governance review being effectively put on hold. In addition, in order to prevent the European economic governance framework from holding back the budgetary response to this major crisis, the European Commission proposed in March 2020 (and the Council then decided) to activate the "general escape clause" of the Stability and Growth Pact, in effect lifting EU budgetary constraints on Member States.
The relaunch of the Economic Governance Review in late 2021 aimed to draw on both the Commission's view of the effectiveness of the economic surveillance framework as presented in February 2020, and in addition on the lessons learnt from the COVID-19 crisis and its aftermath, as described in the new Communication, in order to debate possible evolutions of this framework governing public debts, deficits, and macroeconomic imbalances. But in addition to the COVID crisis, the outbreak of war in Ukraine in early 2022 is also having a very significant impact on public budgets and has led to new calls for the general escape clause to be further extended beyond the end of the year. The Commission is expected to communicate on this before the summer and potential legislative proposals to reform the economic governance framework could be put forward in the fall.
Even aside from the specific pandemic context, the EU rules of economic governance are a topic of major importance for local and regional authorities and the CoR. Though those rules are primarily directed towards Member States, they actually apply to all governmental entities and functions. This is particularly true for local and regional authorities, which are responsible for one third of public spending at EU level as a whole and more than half of public investment, and are thus deeply impacted in particular in terms of their ability to invest and deliver on their policy objectives.
After the Communication of February 2020, the Commission initially planned to collect feedback and engage with stakeholders in the first half of 2020 before coming forward with next steps by the end of that year. However, the coronavirus pandemic and its massive impact in the EU in general and on public finances in particular led to the economic governance review being effectively put on hold. In addition, in order to prevent the European economic governance framework from holding back the budgetary response to this major crisis, the European Commission proposed in March 2020 (and the Council then decided) to activate the "general escape clause" of the Stability and Growth Pact, in effect lifting EU budgetary constraints on Member States.
The relaunch of the Economic Governance Review in late 2021 aimed to draw on both the Commission's view of the effectiveness of the economic surveillance framework as presented in February 2020, and in addition on the lessons learnt from the COVID-19 crisis and its aftermath, as described in the new Communication, in order to debate possible evolutions of this framework governing public debts, deficits, and macroeconomic imbalances. But in addition to the COVID crisis, the outbreak of war in Ukraine in early 2022 is also having a very significant impact on public budgets and has led to new calls for the general escape clause to be further extended beyond the end of the year. The Commission is expected to communicate on this before the summer and potential legislative proposals to reform the economic governance framework could be put forward in the fall.
Even aside from the specific pandemic context, the EU rules of economic governance are a topic of major importance for local and regional authorities and the CoR. Though those rules are primarily directed towards Member States, they actually apply to all governmental entities and functions. This is particularly true for local and regional authorities, which are responsible for one third of public spending at EU level as a whole and more than half of public investment, and are thus deeply impacted in particular in terms of their ability to invest and deliver on their policy objectives.
This opinion is based on the European Commission Communication put forward on 19 October 2021 and entitled: The EU economy after COVID-19: implications for economic governance (COM(2021)662 final). This is a revised opinion, due to the fact that the Communication is a relaunch of the review of economic governance exercise, which was originally started in February 2020 and had been the basis for the CoR opinion "Economic governance review" by rapporteur Elio Di Rupo (BE/PES), which was adopted in Plenary in December 2020.
After the Communication of February 2020, the Commission initially planned to collect feedback and engage with stakeholders in the first half of 2020 before coming forward with next steps by the end of that year. However, the coronavirus pandemic and its massive impact in the EU in general and on public finances in particular led to the economic governance review being effectively put on hold. In addition, in order to prevent the European economic governance framework from holding back the budgetary response to this major crisis, the European Commission proposed in March 2020 (and the Council then decided) to activate the "general escape clause" of the Stability and Growth Pact, in effect lifting EU budgetary constraints on Member States.
The relaunch of the Economic Governance Review in late 2021 aimed to draw on both the Commission's view of the effectiveness of the economic surveillance framework as presented in February 2020, and in addition on the lessons learnt from the COVID-19 crisis and its aftermath, as described in the new Communication, in order to debate possible evolutions of this framework governing public debts, deficits, and macroeconomic imbalances. But in addition to the COVID crisis, the outbreak of war in Ukraine in early 2022 is also having a very significant impact on public budgets and has led to new calls for the general escape clause to be further extended beyond the end of the year. The Commission is expected to communicate on this before the summer and potential legislative proposals to reform the economic governance framework could be put forward in the fall.
Even aside from the specific pandemic context, the EU rules of economic governance are a topic of major importance for local and regional authorities and the CoR. Though those rules are primarily directed towards Member States, they actually apply to all governmental entities and functions. This is particularly true for local and regional authorities, which are responsible for one third of public spending at EU level as a whole and more than half of public investment, and are thus deeply impacted in particular in terms of their ability to invest and deliver on their policy objectives.
The public and interinstituional debate on the economic governance framework is ongoing. However this opinion has already had significant impact, notably in terms of media outreach with articles in key Belgian publications such as Trends or La Libre.
After the Communication of February 2020, the Commission initially planned to collect feedback and engage with stakeholders in the first half of 2020 before coming forward with next steps by the end of that year. However, the coronavirus pandemic and its massive impact in the EU in general and on public finances in particular led to the economic governance review being effectively put on hold. In addition, in order to prevent the European economic governance framework from holding back the budgetary response to this major crisis, the European Commission proposed in March 2020 (and the Council then decided) to activate the "general escape clause" of the Stability and Growth Pact, in effect lifting EU budgetary constraints on Member States.
The relaunch of the Economic Governance Review in late 2021 aimed to draw on both the Commission's view of the effectiveness of the economic surveillance framework as presented in February 2020, and in addition on the lessons learnt from the COVID-19 crisis and its aftermath, as described in the new Communication, in order to debate possible evolutions of this framework governing public debts, deficits, and macroeconomic imbalances. But in addition to the COVID crisis, the outbreak of war in Ukraine in early 2022 is also having a very significant impact on public budgets and has led to new calls for the general escape clause to be further extended beyond the end of the year. The Commission is expected to communicate on this before the summer and potential legislative proposals to reform the economic governance framework could be put forward in the fall.
Even aside from the specific pandemic context, the EU rules of economic governance are a topic of major importance for local and regional authorities and the CoR. Though those rules are primarily directed towards Member States, they actually apply to all governmental entities and functions. This is particularly true for local and regional authorities, which are responsible for one third of public spending at EU level as a whole and more than half of public investment, and are thus deeply impacted in particular in terms of their ability to invest and deliver on their policy objectives.
The public and interinstituional debate on the economic governance framework is ongoing. However this opinion has already had significant impact, notably in terms of media outreach with articles in key Belgian publications such as Trends or La Libre.
THE EUROPEAN COMMITTEE OF THE REGIONS
• reiterates its support for the activation of the general escape clause of the Stability and Growth Pact (SGP), for the first time in the history of the euro area; this activation has played an important role in the response to the crisis from Member States, regions, and local and regional authorities by enabling full use of public budgets to mitigate the consequences – most notably social – of the COVID-19 pandemic;
• believes that if the escape clause of the SGP were to be deactivated in the economic governance framework's current state and against the backdrop an energy crisis, geopolitical instability and the recovery from the COVID-19 pandemic, the required debt reduction would lead to a return to austerity policies, and consequently result in great economic, social and environmental costs; therefore calls for the general escape clause to remain active until a revised economic governance framework is put in place as quickly as possible;
• reiterates its position in favour of abandoning unanimous decision-making in taxation, in order to allow the European Union to take the necessary decisions by qualified majority, as in other areas of action as it allows for progress in the fight against tax abuse and information sharing between Member States. This provision continues to respect the competence at national, regional or local level for collecting taxes or setting tax rates;
• reiterates its repeatedly-expressed request for a "golden co-financing rule" which states that: public spending by Member States and local and regional authorities as part of Structural and Investment Fund co-financing in line with the respective EU co-financing limits should not be considered as national or equivalent structural expenditure as defined within the SGP; underlines that public government investments, such as the sustainable green, digital and social transition and maintaining European competitiveness are important for future generations and should therefore be treated adequately when it comes to public government investments.
• reiterates its support for the activation of the general escape clause of the Stability and Growth Pact (SGP), for the first time in the history of the euro area; this activation has played an important role in the response to the crisis from Member States, regions, and local and regional authorities by enabling full use of public budgets to mitigate the consequences – most notably social – of the COVID-19 pandemic;
• believes that if the escape clause of the SGP were to be deactivated in the economic governance framework's current state and against the backdrop an energy crisis, geopolitical instability and the recovery from the COVID-19 pandemic, the required debt reduction would lead to a return to austerity policies, and consequently result in great economic, social and environmental costs; therefore calls for the general escape clause to remain active until a revised economic governance framework is put in place as quickly as possible;
• reiterates its position in favour of abandoning unanimous decision-making in taxation, in order to allow the European Union to take the necessary decisions by qualified majority, as in other areas of action as it allows for progress in the fight against tax abuse and information sharing between Member States. This provision continues to respect the competence at national, regional or local level for collecting taxes or setting tax rates;
• reiterates its repeatedly-expressed request for a "golden co-financing rule" which states that: public spending by Member States and local and regional authorities as part of Structural and Investment Fund co-financing in line with the respective EU co-financing limits should not be considered as national or equivalent structural expenditure as defined within the SGP; underlines that public government investments, such as the sustainable green, digital and social transition and maintaining European competitiveness are important for future generations and should therefore be treated adequately when it comes to public government investments.
