Economic Governance and the Pandemic: A Year On

Abstract

In February 2020, the Commission launched its ill-fated Economic Governance Review. The time was ripe to assess the effectiveness of the framework for economic and fiscal surveillance, revamped after the economic and financial crisis and the reforms introduced by the six-pack (2011) and two-pack (2013). The main question was to what extent the current arrangements had managed to achieve the following objectives: “(i) ensuring sustainable government finances and economic growth, as well as avoiding macroeconomic imbalances; (ii) providing an integrated surveillance framework that enables closer coordination of economic policies in particular in the euro area, and (iii) promoting the convergence of economic performances among Member States.” The Commission published its initial report on these issues with a view to opening a consultation and broader public debate on the future of economic governance. The Commission’s findings were critical of the current arrangements: the February 2020 report found that the framework for economic and fiscal surveillance had not been sufficiently effective in delivering any of the objectives highlighted above and that, in addition, the rules had become increasingly complex and lacked transparency, hampering credibility and political buy-in. The Commission hoped that a debate and subsequent reform would lead to more effective and transparent arrangements for economic and fiscal surveillance. Unfortunately, other priorities would soon take over, as the review exercise was interrupted by the outbreak of the COVID-19 pandemic. By March 2020, it had become clear that the Union and its Member States faced unprecedented challenges, and the Commission activated the so-called “general escape clause” to allow Member States to depart from the budgetary requirements that would normally apply under the European fiscal framework. Fiscal surveillance—or at least its most onerous elements—was put effectively on hold. Fast forward one year: in March 2021, the Commission issued a communication on the state of economic governance, a year into the pandemic. At this point, there are positive signs that allow for optimism, but the pandemic is far from over or under control. There is no doubt that fiscal measures to address its effects are still necessary, as is the increased room for manoeuvre for Member States under the European fiscal framework. The Commission foresees that the general escape clause will continue to be activated in 2022; depending on the progress of economic recovery, it may be deactivated—allowing budgetary surveillance to return to business as usual—in 2023. In the meantime, the Commission acknowledges that it is not the time to conduct a broad review of economic governance arrangements, but emphasises that reform is still necessary—in fact, that the current predicament highlights the need for reform—and that the review exercise will be relaunched “[w]hen the recovery takes hold”. (...)