On November 9, the European Commission published a Communication setting out orientations for a reformed EU economic governance framework aiming at strengthening debt sustainability while enhancing sustainable and inclusive growth.

The Communication is the product of lengthy discussions and consultations among national governments, the civil society and social partners on how to rebalance Member States’ budgetary discipline and investment-oriented expenditures in the EU’s macroeconomic framework.

The new architecture proposed by the European Commission comprises three components: a revision of the fiscal framework driven by medium-term expenditure, policy coordination between the Commission and Member States to ensure the enforcement of reforms and investments, and a revised procedure on macroeconomic imbalances. The forward-looking approach of the Commission focuses on medium-term objectives and tries to shift from the tight one-size-fits-all rules of the Stability and Growth Pact (SGP) to a more inclusive model.

Already more than five years ago, CESI together with Social Platform and Eurodiaconia had made clear that the EU needed a reform of its fiscal and economic governance. In their discussion paper, the 3 organisations proposed the adoption of a more refined, democratic and socially-just approach that allows Member States better to fill much-needed investment gaps (especially in public services and administrations) without being penalised by budgetary deficit rules of the SGP.

In its position of December 2018, CESI proposed again steps for a more democratic, accountable and transparent economic governance structure. In accordance with the European Pillar of Social Rights, CESI stressed the importance of putting social indicators at par with economic priorities and highlighted the need to foster public social investment.

CESI Secretary General Klaus Heeger said: “The pandemic made clear that we cannot go back to business as we used to. This week, the European Commission expressed its intention to propose a simpler and more transparent economic governance framework with greater national ownership. We welcome the fact that member states will be able to develop their own economic plans with more flexibility. In view of the austerity-based policy responses to the financial crisis post-2007, the latter approach seems to be in principle preferable to the former. However it will take time to assess the real impact of the new strategy.”

In the same vein, CESI President Romain Wolff highlighted the importance of flexibility in the proposed framework: “During the years before the pandemic, the EU’s economic governance framework has helped indeed to keep budgetary discipline at bay. Unfortunately, though, this happened at the price of investment gaps in public services. Then, to face the Covid fallout, massive public expenditure was evidently necessary and the SGP had to be formally suspended because its inflexible emphasis on the avoidance of public deficits was incompatible with economic, fiscal and political realities. We welcome the efforts of the Commission to push for a transparent, more flexible and yet risk-based EU surveillance framework that is sensitive to both budgetary discipline as well as investment needs. The new framework should be adaptable to the differing socio-economic situations in the various Member States.”