European Commission, together with other Union’s institutions, monitor correct and prevent problematic socio-economic trends in the member states’ development. This task becomes even more important in the process of states’ recovery and resilience plans in the post-pandemic period with important financial aspects involved. The EU-27 are anxious to receive the pre-financing as fast as possible; they have to wait just a couple of months. But the burden of changes in the states is enormous including general growth patterns in recovery as well as taxation, green transition issues and sustainable employment…
The EU’s key economic integration objectives are threefold: a) ensuring sustainable states’ economic and finances perspectives while avoiding macroeconomic imbalances in growth; b) enabling closer national economic policies coordination, and c) promoting convergence among states’ economic development. These tasks in the post-pandemic period put unexpected and difficult burden on national governance and socio-economic structures; the latter are obliged to create adequately feasible political-economy’s perspective directions according to the EU’s recovery and resilience program. Among most important are financial strategies in both the EU and the member states growth patterns.
The focal body in the Union’s growth coordination is the Economic and Financial Affairs Council (Ecofin, one of the ten of Council’s configurations), which is responsible for EU policy in three main areas: economic policy, taxation issues and the regulation of financial services. The Ecofin is made up of the EU-27 economic and finance ministers, often with the relevant European Commissioners’ participation. There are also specific Ecofin sessions, attended by national budget ministers and the European Commissioner for financial programming and budget, to prepare the EU’s annual/long-term budgets; Ecofin meetings generally take place once a month.
More in: https://europa.eu/european-union/about-eu/institutions-bodies/council-eu_en. And https://ec.europa.eu/info/business-economy-euro/economic-and-fiscal-policy-coordination/eu-economic-governance-monitoring-prevention-correction/macroeconomic-imbalances-procedure_en
EU member states economy and finances ministers meet in public (with widely available minutes and votes), when they discuss or vote on the Union’s draft legislation: to be passed, the decisions usually require a qualified majority with 55% of countries in favour (with presently 27 member states, these means 15 countries) which must represent at least 65 % of the total EU-27 population. To block a decision, at least 4 countries are needed (representing at least 35% of total EU population), with an exception of some sensitive topics like foreign policy and taxation, which require a unanimous vote, i.e. all EU states must be in favour.
However, the states can also take initiatives in Union’s perspective growth, thus e.g. during the Portugal Council’s presidency in 2021, the state’s goals were to promote innovation efforts in the EU based on common values of solidarity, convergence and cohesion. The presidency programme focuses on five main areas, which are in line with the goals of the EU’s strategic agenda: strengthen Europe’s resilience; promote confidence in the European social model; promote a sustainable recovery; speed up a fair and inclusive digital transition; and reaffirm the EU’s role in the world, ensuring that this is based on openness and multilateralism.
Ecofin is also having some strategic and conceptual discussions about the risks and challenges in the context of the member states’ socio-economic recovery; e.g. strong EU and national policy response has kept companies’ insolvencies at bay and non-performing loans relatively low on banks’ balance sheets. The right economy-social balances shall be ensured in order to coordinate often different national post-crisis and recovery measures following the EU Recovery and Resilience Facility’s (RRF) goals.
RRF in the states
Implementing necessary recovery and resilience measures in the states are presently the most important task for national governance. So far the Commission has received 18 national plans with the rest coming soon; the deadline was the end of April 2021. The plans have to stand the test of time and lead to a positive overhaul of national economies. Presently the Commission is in the discussion process with the states over the already submitted plans to clear the details and finalize the assessments.
More in: https://www.integrin.dk/2021/04/22/the-eu-states-are-determined-to-formulate-their-recovery-and-resilience-plans-rrps/
Only after adopting the national growth plans, the RRF funds can be successfully available in the states, most optimal somewhere this summer. The RRF funds are expected to provide a massive growth stimulus to the member states’ economy without increasing national debts and/or deficits. Preliminary analysis of the national plans has shown quite promising outcomes, acknowledged the Commission vice-president recently, with at least three positive results: a) an overall appropriate balance between investments and reforms; b) strong contribution to the green and digital transitions; and c) a solid social focus.
General reference: https://ec.europa.eu/commission/presscorner/detail/en/SPEECH_21_2641/ 22.05.2021.
In the mid-May 2021, the European Commission upgraded the member states’ spring economic forecast: the projected growth is of 4.2% for the EU economy this year, in general and 4.4% growth next year. Even though growth rates are likely to vary, all EU countries should see their economies return to pre-crisis levels by the end of 2022, the Commission has noted. Fiscal policy should remain supportive both this year and next based on the spring economic forecast; the Commission has confirmed an intention to keep the general post-covid “escape clause” activated in 2022 and/but no longer as of 2023.
Present pandemic has left several painful impacts on the member states’ economies with higher public and private debt, negative impact on social and labour markets, to name a few. However, maintaining extensive liquidity support for too long would carry budgetary risks; on the other hand, the states should avoid sudden, premature or uncoordinated removal of temporary support measures. In this regard, the entire European financial sector and the national banks are supposed to play an important role in ensuring a successful and uniform economic recovery.
The environmental taxation: perspectives
According to the Commission, this kind of taxation is going to play an important role in the Union and the states’ strategies towards a climate-neutral Europe, which is an integral part of the European Green Deal. The latter reflects the Commission’s political commitment to tackling climate change; and it will contribute to long-term sustainable growth as part of the recovery process in the states.
In adopting the “green deal”, it was agreed that green taxation would: – encourage a sustainable use of resources; – reduce waste and pollution; – bring economic, social and health benefits; – help to broaden the taxation base, and – encourage the shift away from labour taxes.
In July 2021, the Commission intends to overhaul the relevant EU climate and energy legislation aligned with the Union’s ambitious 55% emission reduction target for 2030, so-called “fit for 55” package, which would include two proposals: for revising the already outdated Energy Taxation Directive, and a proposal for a Carbon Border Adjustment Mechanism (CBAM). The latter is an environmental measure to address the risk of carbon leakage by equalizing the prices of carbon paid for domestic and imported products. It should incentivize greater use of carbon pricing globally, which would be a positive way to combat climate change.
The Commission is confident to get a consensus among the states on a targeted CBAM proposal that is gradual over time; besides, the EU institutions will strive to make it efficient. There is also a broad support among the states for a revision of existing Energy Taxation Directive to include sectors such as aviation and maritime.
General reference: https://ec.europa.eu/commission/presscorner/detail/en/SPEECH_21_2641/ 22.05.2021.
Other controversial issues: green transition and CAP
The biggest issue at present in the EU and in the states is the agro-sector, which consumes enormous amounts of the Union’s budget, containing over €270 billion of EU farm subsidies only; the whole agro-support is around a third of the EU’s budget. The EU’s Common Agricultural Policy, CAP has been constantly discussed among the EU institutions and the member states –often behind closed doors. The CAP is the biggest single slice of the regular EU budget and all states would like to have a share of it…
However, satisfying existing contending demands is always a hard aspect in CAP, particularly at present post-covid period; the three teams of negotiators (the European Commission, the European Parliament and the 27 national governments represented in the EU agricultural Council) will try soon to strike a positive deal.
With the flagship European Green Deal, the negotiators are under pressure to make the new EU agro-farm policy “greener”, but also in addressing longstanding concerns about corruption and the unequal distribution of funds between large and small farmers. The whole CAP has already been delayed by two years and politicians now want to score a deal on the 2023-2027 payments to secure European farmers adequate financial support. However, there are many controversial issues are on the CAP’s agenda presently that a deal seems hardly within quick reach. But the EU institutions will try to get to “green and socially just new CAP” to kick-start in 2023.
Main issues still are: how to fairly spread out the €270 billion pot between intensive agribusiness and smaller-scale farmers; the Parliament wants to root out CAP corruption in countries (e.g. Hungary and the Czech Republic); to efficiently implement measures in forcing the governments to take the lead; how far the CAP can go to transfer existing food production system onto a greener farming, which is definitely not an easy task to perform.
Another big CAP issue is to reconsider the national CAP plans and eco-schemes waiting for financial support in cases when plans do not align with the Union’s “green deal”. Officials from the European Commission’s agriculture department would ensure that the next set of national plans can incorporate the emerging EU climate and environment legislation. The Commission’s Green Deal Chief Frans Timmermans is expected to clash with the Agriculture Commissioner Janusz Wojciechowski on these issues, as the member states refuse to be tied down by Green Deal plans that aren’t even law yet. And although a more member states’ agricultural autonomy was at the background of the original CAP proposals, the prospects don’t look bright for all the participants of recent negotiations.
SURE – to protect people in work and lobs
Another troublesome aspect in the EU’s financial issues is the support for already damaged employment situation in the member states.
The new EU instrument for temporary Support to mitigate Unemployment Risks in an Emergency (SURE) adopted at the start of the pandemic in April 2020 was designed to help protect jobs and workers affected by the coronavirus pandemic with the aim of providing financial assistance (in the form of loans on favourable terms) to the states of up to €100 billion in total; to finance the loans, the Commission will borrow on the global financial markets.
See more in: https://ec.europa.eu/info/sites/default/files/economy-finance/sure_regulation.pdf
The loans would assist the employment market facing sudden increases in public expenditure to prevent increasing loss of permanent jobs. These loans will specifically help the member states to cover the costs directly related to the extension of national short-time work schemes and other similar measures for the self-employed as a response to the current pandemic.
Many businesses experiencing difficulties are being forced to temporarily suspend or reduce their activities and the employees’ working hours. In avoiding redundancies, the short-time work schemes can prevent shocks associated with the long-term negative consequences on the states’ economy in general and the labour market, in particular. These efforts would help to sustain families’ incomes and preserve the productive capacity and human capital of enterprises and the economy as a whole.
The ECB’s altering role
The European financial sector’s control over the economic strategies in the states is divided into two unequal spheres: on one side, there are 19 EU member states in the common currency’s framework (euro-zone states, that strongly coordinate their monetary policies); on another hand, the rest eight states that are so far holding their own currencies and explore own fiscal and monetary approaches in growth. The latter are going to join the euro-zone club sooner or later, except two states (Denmark and Sweden), which explore their age-old monetary-fiscal policies, generally regulated by the national central banks. The former 19 states’ monetary policies are directed by the European Central Bank, ECB.
The lastly approved ECB’s strategy in 2003 (!?) sticks to the original objective of holding inflation in the EU states “below but close to 2% over the medium term”, the aim is hardly any more feasible as inflation becomes synonymous with the protection of purchasing power, and persistently low inflation in the euro-zone has become a symptom of low growth, sub-optimal employment and slow investment.
In an increasingly strong global trade competition, the European growth strategies shall be inevitably concentrated on domestic consumption (with relatively low export potentials), the alternative which would imply an overhaul of the original ECB’s mandate, allowing the euro area to benefit from a strong “domestic market”.
More in: https://www.robert-schuman.eu/en/doc/questions-d-europe/qe-597-en.pdf