IPOL | Economic Governance Support Unit
2 PE 587.374
In the current governance framework of the Economic and Monetary
Union (EMU), fiscal policies are a national responsibility: according
to the Treaty, they are to be considered as a matter of common
concern and coordinated. EU level coordination mainly focuses on
fiscal discipline under the Stability and Growth Pact, and
macroeconomic stabilisation has remained a national responsibility,
within the limits set in the Treaty. The intention was that automatic
stabilisers would cushion economic shocks during recessions, and
that fiscal buffers would be reinforced during expansionary phases.
For the euro area as a whole, the stabilisation impulse is measured
in terms of the euro area fiscal stance, which is calculated as the sum
of the national fiscal stances of the euro area Member States.
Figure 1 shows the evolution of the aggregated fiscal stance in the
euro area since 2011: following several years of contractionary fiscal
policies, the fiscal stance for the euro area became expansionary in
2015 and then stabilized (“broadly neutral” or slightly expansionary)
until 2019. In 2020, the euro area fiscal stance was strongly
expansionary, in reaction to the pandemic crisis. Figure 2 illustrates
the evolution of the fiscal stance for each Member State in the period
2018-2020. The Annex to this note presents the fiscal stances of the
euro area as a whole and of individual Member States from 2011 to
2021.
The term “euro area fiscal stance” was introduced by the
Commission in its proposal for the economic policy of the euro area
of 2012 (then formally adopted by the Council), which
recommended to “Strengthen the working methods of the Eurogroup
to allow it to take responsibility for the aggregate policy stance in the
euro area, effectively responding to changes in the economic
environment, and to lead the coordination of economic policy in the
context of the strengthened surveillance framework which applies to
the euro area Member States.” Opinions and forecasts on the euro
area fiscal stance are integral part of the European Semester and in
line with the
Regulation on draft budgetary plans, which explicitly
tasks the Commission and the Eurogroup to assess and discuss the
budgetary situation and prospects in the euro area as a whole
(See
Box 1). The
European Fiscal Board (EFB), established in 2015, was
tasked to assess the fiscal stance appropriate for the euro area.
Nevertheless, there are no rules or instruments that allow the direct
management of the euro area fiscal stance.
From 2012 to 2018, the Commission has referred to the euro area
fiscal stance in its Opinions on the Draft Budgetary Plans
and has
expressed its position on the appropriate fiscal stance in its
proposals for the Council recommendation on the
economic
policies of the euro area. However, since 2019, the Commission has
not explicitly proposed an appropriate euro area fiscal stance in these two sets of documents (Box 2 provides
an overview of some institutional positions). Nevertheless, the Commission focus on the difficulties related
to the concept of the euro area fiscal stance in its communication on “
Economic governance review” of
February 2020.
Box 1: The euro area fiscal stance
in EU legislation
The
Regulation on draft budgetary
plans, adopted in 2013 as part of
the 2-pack legislation, reads: “The
Commission shall make an overall
assessment of
situation and prospects in the euro
area as a whole, on the basis of the
national budgetary prospects and
their interaction across the area,
relying on the most recent economic
forecasts of the Commission services.
The overall assessment shall include
sensitivity analyses that provide an
indication of the risks to public
finance sustainability in the event of
adverse economic, financial or
budgetary developments.
It shall
also, as appropriate, outline
measures to reinforce the
coordination
macroeconomic policy at the euro
area level. The overall assessment
shall be made public and shall be
taken into account in the annual
general guidance to Member States
issued by the Commission....
The
opinions of the Commission on the
draft budgetary plans and the
budgetary situation and prospects
in the euro area as a whole on the
basis of the overall assessment made
by the Commission. The results of
those discussions of the Eurogroup
shall be made public where
appropriate.”