Political and Economic Cooperation in the EU

Ministers of Finance and Economic Affairs in ECOFIN set out and coordinate EU policies regarding economic policy matters. ECOFIN meets approx. once a month, i.a. to find solutions to the public finances crisis in a number of Member States and thereby uphold the goal of economic stability in the EU.

During the Danish Presidency of the Council of the EU, a number of dossiers on economic policy will dominate the work of the Council. Below you can read more about these matters and the EU’s policy in this area.

European semester

From 2011, as part of stronger economic and political cooperation, the EU has introduced a European semester, which will be a new framework for economic cooperation processes in the EU. The purpose is to strengthen the discussion of economic policy in EU Member States prior to national agreement and implementation.

The European semester starts off with discussions based on the Commission's "Annual Growth Survey". In the early spring, the European Council holds its annual economic summit and outlines general policy recommendations to the EU Member States. By the end of April, the EU Member States hand in their stability and convergence programmes and national reform programmes which are to take into account the guidelines presented at the European Council summit.

The next step is the Commission’s preparation of a comprehensive assessment of the stability and convergence programmes and national reform programmes in April-June. The Commission adopts a combined draft for a Council opinion and country-specific recommendation.

ECOFIN then discusses and adopts opinions and recommendations regarding the EU Member States, which are subsequently approved by the EU Heads of State or Government in the European Council. Subsequently, the EU Member States take into account the opinions and recommendations when they determine their national economic policies, including national budgets.

EU preparation ahead of G-20 and IMF meetings

The International Monetary Fund (IMF) and the G20 are key players when it comes to global economic and financial cooperation. The G20 holds Summits for Heads of State or Government as well as preparatory meetings for finance ministers and central bank governors. The IMF has played a crucial role in limiting the severity of the crisis, including by providing large financial resources for countries in difficulties. The IMF has a global membership and plays a fundamental role in monitoring the global economy and the economic and financial policies of its members.

The Danish EU Presidency represents the EU at G20 meetings for finance ministers and central bank governors, in close cooperation with the European Commission. The Presidency represents the EU’s positions at G20 meetings and seeks to ensure EU influence on G20 decisions. Germany, France, United Kingdom, Italy and Spain are among the EU Member States individually represented in the G20.

It is a high priority to the Danish Presidency to ensure that the EU acts collectively in the G20 and makes the most of its global economic importance to influence international economic and financial decisions. This requires thorough preparation and clearly defined EU positions.

The implementation of the economic governance reform

The financial and economic crisis and the following debt crisis revealed some significant weaknesses and deficiencies of the economic cooperation within the EU. The existing rules on sound public finances were not sufficiently complied with by the EU Member States and were not appropriately enforced at EU level. In addition, many Member States had also built up unsustainable macroeconomic imbalances such as overheating economies and housing bubbles.

Against this background, the EU launched  an economic governance reform in the spring of 2010, which among others strengthens fiscal cooperation (the Stability and Growth Pact). The reform creates a stronger focus on debt reduction, consolidation during economic upswings, stricter sanctions for countries that do not comply with the rules and a strengthening of national budgetary frameworks.

Moreover, the reform involves new methods of collaboration on macroeconomic imbalance, such as sustained competitiveness problems and current account deficits. In the autumn of 2011 the EU Member States reached agreement with the European Parliament on a reform, which will come into force during the Danish Presidency in the first half of 2012.

It is a high priority for the Danish Presidency that the strengthened rules on debt reduction and sanctions for non-compliance with recommendations in the Stability and Growth Pact are applied consistently and that the new and enhanced cooperation on macroeconomic imbalances is effectively implemented from the beginning.

The Competitiveness Pact

In March 2011, the Heads of State or Government agreed on a new Competitiveness Pact (the “Euro Plus Pact”). A total of 23 of the EU’s 27 Member States have joined the Pact, including Denmark.

The Pact implies that the participating countries agree on common overall goals to improve competitiveness, increase employment, and ensure fiscal sustainability and financial stability. Each Member State chooses specific measures to attain these goals and on an annual basis the Heads of State or Government will outline the chosen measures and the strategy to address the challenges within the four areas. Additionally, the Pact invites to a dialogue on tax policy between participating countries, including a focus on the fight against fraud and evasion and the possibility of a common corporate tax base.

Implementation of the Pact will be supported by the monitoring of significant indicators regarding unemployment, competitiveness, fiscal sustainability, etc.

It will be a priority for the Danish Presidency to ensure that the implementation of the Pact makes a substantial contribution towards a strong focus on specific economic and political challenges facing the individual participating Member State.

Economic coordination in ECOFIN
The Ministers of Finance and Economic Affairs in ECOFIN set out and coordinate the policies of the EU regarding economic and political matters.

The responsibility of ECOFIN is therefore to implement common fiscal rules and monitor Member States’ economies and economic imbalances. In addition, ECOFIN deals with the Economic and Monetary Union (EMU) including the euro, financial regulation and supervision, cooperation on tax issues in the EU, the EU’s views on global cooperation in G20, the budget of the EU, climate finance and economic relations with third countries.

The Euro Group, which is an informal body consisting of Member States having adopted the euro as their currency, meets the day before the meeting of ECOFIN and discusses matters related to the euro. When ECOFIN acts on matters related to the euro, only Member States that have adopted the euro can vote.

The EU’s response to the financial crisis
Member States have agreed on a number of initiatives to address and contain the economic and financial crisis and the crisis for public finances in a number of EU Member States.

These include for example a reform of economic governance as well as the Euro Plus Pact, which requires participating countries (both euro area countries and a number of non-participating countries including Denmark) to decide on commitments in order to contribute to common agreed policy objectives concerning employment, competiveness, sound public finances and financial stability.

The EU Member States have also established a permanent crisis mechanism for euro area countries (European Stability Mechanism, ESM, taking effect from 2013) and set up financial assistance programmes for euro area countries with needs in this regard. Furthermore, work is ongoing along several dimensions to strengthen financial regulation and supervision.

Member States’ cooperation on economic policy must support common goals of price stability, economic growth and high employment. Cooperation among Member States in the field of economic policies is beneficial as the economies in EU are closely interconnected since economic development and economic political measures taken in one Member State can have spill-over effects in the other countries.

The framework for the EU’s economic cooperation
Cooperation on economic and political matters is based on several forms of cooperation procedures. A fundamental principle when coordinating their economic policies is that Member States are responsible for their national economic policy.

As a result of the crisis, Member States have strengthened the coordination of economic policy. However, Member States continue to place strong emphasis on national sovereignty in economic matters while adhering to common rules.

ECOFIN seeks consensus in the different matters. When decisions are taken it is usually done by qualified majority or unanimity in consultation or in co-decision with the European Parliament.

Every year, together with the European Parliament, ECOFIN also prepares and adopts the budget of the EU, which is about EUR 125 billion.