Reform of the EU economic governance framework


Reform of the EU economic governance framework

 Adoption: 10/10/2023
The main objective of this opinion is to strengthen public debt sustainability while also promoting sustainable and inclusive growth and facilitating public investments and reforms, particularly in the green and digital transitions.

The opinion seeks to strengthen national ownership for Member States and recognise country specific regional and national situations.

The CoR supports the principle of a possible extension to the fiscal adjustment period in specific cases including for investments and reforms aimed at promoting economic, social and territorial cohesion; the UN SDGs; the EU Green Deal; and the digital transition.

The CoR supports allowing specific treatment for national or regional co-financing of projects funded by the EU, for example projects related to cohesion.
Following a long "economic governance review" process, the European Commission presented on 26 April 2023 three legislative proposals to reform the EU rules governing debts and deficits, and notably the Stability and Growth Pact. The CoR opinion on these proposals was led by long-standing rapporteur Elio Di Rupo (BE/PES) and adopted in October 2023. Thanks to close engagement with the EP, several key demands of the CoR were taken up by the EP report adopted in December. However, the Council's position – also adopted in December – was much less favourable from a CoR standpoint.

Trilogue negotiations started on 17 January 2024, with a tight deadline of 9 February for completion, due to the upcoming suspension of parliamentary work ahead of the June elections. On Saturday 10 February 2024, it was announced that the European Parliament and the Council had reached a provisional agreement on a reform of economic governance (published by the Council on 21 February and available here).

An assessment of this trilogue agreement highlights a clear success for the CoR, as the key objective the Committee has been pursuing in this field for ten years is achieved, with the text including a clear and broad exclusion of co-financing from net expenditure (Art. 2):

*‘net expenditure’ means government expenditure net of interest expenditure,
discretionary revenue measures, expenditure on programmes of the Union fully
matched by Union funds revenue, **national expenditure on co-financing of
programmes funded by the Union**, cyclical elements of unemployment benefit
expenditure, and one-offs and other temporary measures;*

Meaningfully, this exclusion is not capped (whereas the EP report included a cap of 0.25% of GDP).

This exclusion is not only a significant step forward with regards to the instruments under the current MFF, but the fact that it is uncapped and the very broad wording used in the definition also open the possible use of this provision in the next MFF, with regards to any future EU programme or instrument based on co-financing.

In addition, with regards to involvement of local and regional authorities in the reformed economic governance process, the agreement is also rather positive from the CoR standpoint. The Regulation mandates the following (Art.9):

*Prior to the submission of its national medium-term fiscal-structural plan, each Member
State shall conduct, in accordance with the national framework, a consultation process of
civil society, social partners, regional authorities and other relevant stakeholders.*

Furthermore, according to Art.11(g), Member States shall include information on this consultation in the plans themselves. (Although for the first cohort of plans, transitory provisions (Art. 38) foresee that the consultation is optional due to time constraints, as the plans are due in already in September 2024.)

Lastly, the agreed text contains some further improvements from the CoR standpoint: Notably the fact that consistency/complementarity with cohesion policy has to be explained in the plans (Art. 11(g)) and that consistency with the PAs is part of the criteria for extending the adjustment period (Art.13.4).

Overall, this very positive result for the CoR can be linked to several factors. The years-long review of economic governance process (4 years in total) allowed the CoR to build expertise and credibility through three successive opinions, all with the same high-profile rapporteur, Elio Di Rupo. Over this period, the CoR and the EP built very close links with regards to this file, both at working level and – facilitated by their being part of the same political group – at political level between the CoR rapporteur and EP rapporteur Margarida Marques. For instance, Ms Marques took part in a total of four ECON and CoR plenary meetings, and held different exchanges with Mr Di Rupo. This resulted in a final EP report on the reform which was particularly well aligned with CoR demands. Those were largely preserved in the agreement reached at the end of the trilogue despite initial opposition from the Council.
- considers the reform of the EU's economic governance framework inevitable given the impacts of the COVID-19 crisis and Russia's invasion of Ukraine, and given the need to encourage public investment to help achieve the EU's commitments when it comes to the green and digital transitions;
- recalls that local and regional authorities (LRAs) are on the frontline for dealing with these multiple challenges, and are responsible for more than half of public investment in Europe;
- supports the principle of a possible extension to the fiscal adjustment period in specific cases and believes that investments and reforms aimed at promoting economic, social and territorial cohesion and achieving the UN Sustainable Development Goals, and at implementing the EU Green Deal and the digital transition, could be reasons for allowing such an extension for a limited amount of time;
- recalls that expenditure under co-financing is, by definition, essential for the implementation of EU priorities – the European Green Deal, economic, social and territorial cohesion, the Sustainable Development Goals, the European Pillar of Social Rights and the 2030 Policy Programme 'Path to the Digital Decade'. Granting this expenditure favourable treatment within the financial framework would boost the overall coherence of European policies.