European social market economy: the concept of stable growth

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The European integration “project” with its seventy years experience is based on a specific development model called “social market economy”, in which the member states’ growth sectors are heavily regulated by the EU institutions. Particularly, the post-pandemic period has shown the growing amount of the EU support for “managing” the states in the transition to new facets of socio-economic development.  

EU-wide political-economy: regulation and coordination
The Directorate‑General for Economic and Financial Affairs, DG ECFIN is the European Commission department responsible for the EU-wide policies promoting economic growth and recovery, higher employment, stable public finances, financial stability, etc.
The ECFIN conducts economic forecasts and business and consumer surveys to underpin economic policy in the member states. It also coordinates the Commission’s work for a deeper and fairer Economic and Monetary Union, EMU and promotes the role of the EU as a global actor in the economic arena.
Finally, the DG is responsible for economic policy coordination, in particular through the European Semester, to safeguard the member states’ fiscal and financial stability. Besides, the DG ECFIN works to facilitate the post-covid recovery, support people and businesses and assists in creating a greener, more digital and resilient member states’ economies, in line with the EU’s long-term goals and the Commission’s priorities in the European Green Deal.

Recovery and Resilience Task Force
The DG is in charge of a wide range of instruments aimed to help the member states in delivering on the member states’ recovery and resilience plans:
= Together with the Recovery and Resilience Task Force, it is responsible for the implementation of the EU’s main recovery fund, i.e. Recovery and Resilience Facility, RRF. The RRF entered into force in February 2021 to mitigate the posy-pandemic economic and social impact; presently, it is the cornerstone of the EU-wide recovery program NextGenerationEU to assist the member states to repair socio-economic damage of the pandemic as well as dealing with the global challenges and shocks. Total available RRF funds at present reached about €724 bn, with €338 bn in grants and €386 bn in loans.
= The DG is responsible for the implementation of the European instrument for temporary Support to mitigate Unemployment Risks in an Emergency (so-called SURE program), providing financial assistance of up to €100 billion to the EU states to protect workers and jobs by supporting short-time work schemes and similar measures.
= It is in charge of implementing the InvestEU program, the EU’s flagship investment facility to kick-start the states’ economies and mobilise private investment.
= Finally, the DG is responsible for macro-financial assistance programs, MFA to partner countries, including a €3 billion MFA package for ten enlargement and neighbourhood partners, aimed to help them limit the post-pandemic socio-economic fallouts.
More on the RRF scoreboard and national recovery/resilience plans’ implementation in: https://ec.europa.eu/economy_finance/recovery-and-resilience-scoreboard/index.html

Regulatory aspects
The new EU’s rulebook, i.e. the Lisbon Treaty, LT in force since December 2009, has included new facets in the member states’ political economy and business: LT created, for the first time in the EU’s history, the division of competence between the EU institutions and the member states’ governance in socio-economic sectors. Hence, according to the LT, the member states’ growth is “coordinated” among exclusive (5 spheres), shared (about 13 spheres) and supporting (about 12 spheres) between the EU and the member states. Thus, there are totally 36 socio-economic “developmental sectors” within the range of the EU-wide integration with huge involvement of national growth patterns.
More in: http://eur-lex.europa.eu/en/index.htm.

Among these EU policy sectors, 17 sectors are of a purely social-economic significance, though the “regulatory burden” is different from sector to sector. For example, most complicated of them include: a) external relations – with more than 3 thousand legal acts; b) industrial policy and internal market – with about 1,500; c) financial and institutional matters – with more than one thousand acts; d) agriculture and rural development – more than 3,000 acts; e) competition policy and law – about 1,800; f) health, environment, consumes policy -1,300 legal acts, etc. There are also sectors with smaller number of EU rules: in science, information, education and culture – about 390 acts; in regional and structural policy coordination – 370 acts; in energy –over 360); in providing services – 236.
There are around 200 legal acts in such sectors as taxation, and in the legal instruments relating to undertakings with over 110 legal acts, etc.
The EU’s acquis, so-called “the body of the EU law”, includes presently over 80 thousand pages of legal texts, mainly regulations, directives and decisions. Each year the EU institutions adopt thousands of legal acts (with different competence and “power”): e.g. in only one most “fruitful” year (2011) there were adopted over 78 thousand regulations, 5,5 thousand directives and over 28, 4 thousand decisions; in total over 112 thousand legal acts for economic policies and business development. However, the main “complexity” in the extensive EU-wide regulatory burden lies in the cooperative, coordinative and integrative approach to business arrangements.

Note: this legal side of “business environment” has been already subject to analysis; see, e.g. Eteris E. Modern European Law for Businessmen: Lisbon Treaty in Action. – Riga Stradina University Publish. 2012. – 202 pp.
More in the book review:
http://www.baltic-course.com/eng/book_review/?doc=64212&output=d

EU-wide executive and management instruments
It is important to show most vital historic and recent directions and “instruments” in the EU-wide socio-economic management:
= The Economic and Monetary Union (EMU) represents a major step in the integration of the EU-27 member states economies; it provides stability as well as stronger, sustainable and inclusive growth both in the euro area and the EU as a whole for the sake of improving the lives of EU citizens.
= The aim of capital markets union, CMU is to get investments and savings flowing across the EU so that it can benefit consumers, investors and companies. The CMU initiative was launched in 2015; however, the EU “capital markets” remain fragmented. Hence, a strong and complete CMU is needed presently and in future in order to support the post-pandemic economic recovery and finance the green and digital transitions. In addition, CMU can contribute to a more inclusive and resilient society, notably by helping to meet the challenges posed by an ageing population. Lastly, integrated capital markets are crucial for the EU’s global competitiveness and its autonomy; thus, Commission’s report on the action plan “Capital Markets Union for people and businesses” (September 2020) underlined that the CMU’s strategies on sustainable growth, finances, digital transition and SMEs are all mutually reinforcing. They represent a “joined-up package of measures” to strengthen Europe’s economy and make it more competitive and sustainable to better serve people and companies.
The CMU action plan proposes a number of legislative and administrative actions to deliver on three key objectives: a) supporting green, digital, inclusive and resilient economic recovery by making financing more accessible to European companies; b) making the EU an even safer place for individuals and businesses to save and invest long-term; and c) integrainting national capital markets into a genuine EU-wide single market.
More on CMU in: https://finance.ec.europa.eu/capital-markets-union-and-financial-markets/capital-markets-union/capital-markets-union-2020-action-plan_en; on the EU action plan on CMU in: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=COM:2020:590:FIN

= The Recovery and Resilience Facility, RRF mentioned before has been the key instrument in the NextGenerationEU program to help the states being stronger and more resilient, as well as support reforms and investments. National recovery-resilience plans, NRRPs have been assisted by the RRF funding to support implementation of binding climate and digital goals; besides, the RRF will help the states to achieve target of climate neutrality by 2050, and set the states on a path of digital transition, creating jobs and spurring growth. Each NRRP will have to include: a) minimum 37 percent of budget expenditures for climate investments and reforms, and b) minimum 20 percent of expenditures to foster the digital transition.
More on RRF in: https://economy-finance.ec.europa.eu/eueconomyexplained/recovery-and-resilience-facility_en

= The InvestEU Program provides long-term funding to companies and supports the EU-wide policies in recovery and resilience in the states.
The program is the flagship EU-wide investment program to provide crucial support to companies, support the recovery and help build a greener, more digital and more resilient member states economies. It will mobilise more than €372 billion for provide crucial long-term funding and stimulating private investment.
Source: https://economy-finance.ec.europa.eu/eueconomyexplained/investeu_en

= The EU-wide economic governance aims to monitor, prevent and correct national economic growth patterns that could have negative effect for economies and/or weaken the other EU states’ economies. The European Semester is the main framework for integrated surveillance and coordination of the EU-wide economic and employment policies.
The European Semester was introduced in 2011 as the EU’s response to the weaknesses in the EU’s economic governance revealed during the financial and economic crisis. The EU took a wide range of measures to enhance policy coordination and to strengthen its economic governance as the best way to return to sustainable economic growth, job creation, financial stability and sound public finances. This was done by adopting new legislation which strengthened the Stability and Growth Pact and by synchronizing the timetables of the various existing policy coordination frameworks and by aligning the goals of national fiscal, economic and employment policies. The areas of surveillance and coordination were extended beyond fiscal issues to broader macroeconomic imbalances and related policies under the macro-economic imbalance procedure.
The European Semester cycle starts in autumn with the publication of the Commission’s Annual Sustainable Growth Survey, ASGS; it is coped with the Alert Mechanism Report, AMR and the proposal for a Joint Employment Report, followed by the recommendations for the euro area and the draft budgetary plans of EU euro area member states. Then, in April, the states present to the Commission their national reform programs and/or stability-convergence programs; in this way the states report on the specific policies they are implementing and their intentions to boost jobs and growth, preventing or correcting macro-economic imbalances, as well as revealing concrete plans to ensure compliance with the EU fiscal rules. Starting from the 2022 cycle, the national reform programs have to include two bi-annual reporting under the RRF rules.
Then, each May, the Commission publishes adopted national reports concerning the process of implementing recovery-resilience plans, followed by the general analyses of the socio-economic development.
More on Semester in: https://commission.europa.eu/business-economy-euro/economic-and-fiscal-policy-coordination/european-semester/framework/european-semester-explained_en

Due to complexities in the process of the EU-member states’ socio-economic integration, there are several “executive commissioners” that are “guiding” national growth patterns: the three main commissioners are: Paolo Gentiloni, commissioner for economy; commissioner Nicolas Schmit, responsible for “jobs and social rights”; and Commission VP Valdis Dombrovskis to “guide” social economic aspects, i.e. “economy that works for people”.
Besides there are several other “sectoral commissioners” involved: Margrethe Vestager, executive VP responsible for the digital transition; vice-president, Margaritis Schinas with the portfolio called “promoting European way of life”; commissioner Janusz Wojciechowski responsible for agriculture; commissioner Elisa Ferreira “regulating” cohesion process and reforms; commissioner Stella Kyriakides with health and food safety coordination; commissioner Adina Vălean for transport; commissioner Kadri Simson for energy; and commissioner Virginijus Sinkevičius responsible for environment, oceans and fisheries, etc.
Source: https://commissioners.ec.europa.eu/index_en

Recent economic forecast
For example, in September 2023, the EU presented a summer-2023 economic forecast which showed that the block’s economy continued to grow, albeit with reduced momentum: the EU-27 economy’s rate was down to 0.8% in 2023, from 1% projected in the spring forecast, and 1.4% in 2024, from 1.7%. It also revised growth in the euro area down to 0.8% in 2023 (from 1.1%) and 1.3% in 2024 (from 1.6%).
The global economy has fared somewhat better than anticipated in the first half of the year; however, the outlook for global growth and trade remains broadly unchanged compared to spring, implying that the EU economy cannot count on strong support from external demand.
Reference to: https://ec.europa.eu/commission/presscorner/detail/en/ip_23_4408

Reduced growth momentum
Latest data confirm that economic activity in the EU was subdued in the first half of 2023 on the back of the formidable shocks that the EU has endured. Weakness in domestic demand, in particular consumption, shows that high and still increasing consumer prices for most goods and services are taking a heavier toll than expected in the spring forecast. This is despite declining energy prices and an exceptionally strong labour market, which has seen record low unemployment rates, continued expansion of employment, and rising wages.
Meanwhile, as the summer forecast shows, sharp slowdown in the provision of bank credit to economy sectors and SMEs reveals that the monetary policy’s tightening is working its way through the economy. Survey indicators now point to slowing economic activity in the summer and the months ahead, with continued weakness in industry and fading momentum in services, despite a strong tourism season in many parts of Europe.
Overall, the weaker growth momentum in the EU is expected to extend to 2024, and the impact of tight monetary policy is set to continue restraining economic activity. However, a mild rebound in growth is projected next year, as inflation keeps easing, the labour market remains robust, and real incomes gradually recover, noted the EU summer-23 forecast.
The inflation rates are reducing: e.g. in the EU-21-euroarea it reached 5.3% in mid-2023, which is half of the peak level of 10.6% recorded in October 2022.

References to: https://economy-finance.ec.europa.eu/economic-forecast-and-surveys/economic-forecasts/summer-2023-economic-forecast-easing-growth-momentum-amid-declining-inflation-and-robust-labour_en

 

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