The European Semester


The European Semester of the European Union was established in 2010 as an annual cycle of economic and fiscal policy coordination. It provides a central framework of processes within the EU socio-economic governance. The European Semester is a core component of the Economic and Monetary Union and it annually aggregates different processes of control, surveillance and coordination of budgetary, fiscal, economic and social policies. It also offers a large space for discussions and interactions between the European institutions and Member States. As a recurrent cycle of budgetary cooperation among the EU Member States, it runs from November to June and is preceded in each country by a national semester running from July to October in which the recommendations introduced by the Commission and approved by the Council are to be adopted by national parliaments and construed into national legislation.
The European Semester has evolved over the years with a gradual inclusion of social, economic, and employment objectives and it is governed by mainly three pillars which are a combination of hard and soft law due a mix of surveillance mechanisms and possible sanctions with coordination processes.
The main objectives of the European Semester are noted as: contributing to ensuring convergence and stability in the EU; contributing to ensuring sound public finances; fostering economic growth; preventing excessive macroeconomic imbalances in the EU; and implementing the Europe 2020 strategy. However, the rate of the implementation of the recommendations adopted during the European Semester has been disappointing and has gradually declined since its initiation in 2011 which has led to an increase in the debate/criticism towards the effectiveness of the European Semester.

History

The European Semester was initiated in 2010 with the aim of providing better coordination between the European Union member states regarding their fiscal and economic policies. It is embedded in the architecture of the Economic and Monetary Union of the European Union and was created after the 2008 financial crisis and the Eurozone crisis. These international economic crisis deeply affected the EU member states and demonstrated the need for an enhanced economic and fiscal governance.
Prior to 2010, the EU member states’ economic policies were coordinated separately and yet the member states’ economies were closely interdependent under the Economic and Monetary Union. Therefore, the countries found it appropriate to coordinate their economic policy procedures under a common time-based framework as well as to facilitate and harmonize their national budgetary, growth and employment policy goals, while taking into consideration various EU set of targets. The European Semester was meant to boost and improve the national strategies towards more fiscal, economic, employment and social policy coordination. It is based on different acts as well as on actions and development plans such as the Stability and Growth Pact, the European Employment Strategy, the Lisbon Strategy that sets the basis of the Open Method of Coordination and the Horizon 2020 strategy.
The European Semester was created under the legal basis of the Six-pack and especially on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies. The first Semester was initiated in 2011.
At the end of 2017, the scope of the European Semester widened with the announcement by the European Parliament, the Council and the European Commission of the implementation of a social dimension within the third pillar, through the European Pillar of Social Right.
In 2020, with the outbreak of the COVID-19 crisis, the European Semester requirements were simplified. During the 2020 round of the European Semester, the main steps basically remained the same, but in response to the high socio-economic uncertainty of the crisis, some measures were made more flexible for the Member States. As opposed to other years, the 2020 European Semester recommendations mainly focused on broad areas that were the most related to the sanitary crisis, such as investments on healthcare, preservation of employment, research and development and the preservation of the single market. Created in a context of crises, the European Semester will be adapted in 2021 in response to the COVID-19 crisis. The Recovery and Resilience Facility, as part of the NextGenerationEU, was integrated into the European Semester framework.

The three pillars: a mix of hard and soft law

The European economic governance is formed by 3 pillars that were taken over under a single overarching framework: the European Semester. Before 2010, the European economic governance consisted of 2 pillars: the budgetary surveillance since the adoption of the Stability and Growth Pact in 1997 and the socio-economic coordination initiated by the Lisbon Strategy in the early 2000. Since the Eurozone crisis, the economic dimension of the Economic and Monetary Union was enhanced and one additional pillar was added while the existing pillars were strengthened. The 3 Pillars that form the European Semester since the crisis include:
  • The budgetary surveillance that was strengthened ;
  • The macroeconomic surveillance ;
  • The socioeconomic coordination ;
  • In some literature, there is a fourth pillar based on Financial solidarity which doesn't play a relevant role during the Semester because all the macroeconomic and budgetary processes that form its core are part of the 3 pillars.
The European Semester is a framework of processes that combines hard and soft law. Soft law refers to non-binding processes. Indeed, during the European Semester, there is a coordination between the Member States that are not legally engaged and not forced to comply with its outcomes or its targets. Nevertheless, the European Semester also has a hard law component. Within hard law, the processes of budgetary as well as macroeconomic assessments and recommendations mentioned as legally engaging States in regulations or in treaties, must be observed. That means that States can be subjected to sanctions in case of non-compliance. The first and the second pillars of the European Semester form the hard law component. The third pillar is the broader one and the more sensitive for the Member States and deals with soft law.

First pillar: Budgetary surveillance

This pillar under the European semester framework aims at ensuring the surveillance and preventing the apparition of budgetary imbalances. In case of imbalances, corrective measures are taken. The legislative acts and treaties under this pillar are the following:
Article 126 of the Treaty on the functioning of the European Union prohibits excessive deficits. Besides, the protocol n°12 states 3% of the GDP as maximum. The multilateral surveillance is a part since 2011 of the European Semester. Therefore, each Member State has to give to the Commission and the Council in its stability programme all the information concerning its deficit ratio.
The Medium-term objective is the deficit taken in a broader period of time and that is not subjected to economic cycles effects and budgetary short-term measures. The MTO is an important parameter taken into account by the Commission during its assessment of the budgetary situation of a Member State. The MTO must lead to an equilibrium of the deficits of each Member State and is calculated as the difference between public spending and the potential GDP growth. Indeed, amending one of the two regulation constituting the Stability and Growth Pact states that the MTO shall be between -0,5% of the GDP and the equilibrium or exceeding it. All the Member states that haven't reach a certain reference rate of public spending based on GDP growth in the medium term have to follow a trajectory of adjustment defined by the Commission and the Council.

Rules concerning Public Debt

The maximum of 60% of indebtedness relative to the GDP of each Member State was first inserted in the Protocol on the excessive deficit procedure of the Maastricht Treaty in order to prepare the convergence of the States towards the adoption of the Euro. Moreover, the 60% criterion was taken over in the Protocol on the procedure regarding excessive deficits attached to the Lisbon Treaty. For the multilateral surveillance, each Member State has to give to the Commission and the Council in its stability programme all the information concerning its indebtedness ratio. Furthermore, in its article 6 states that if a Member State requests financial assistance, an evaluation shall be made on the sustainability of its government debt.

Excessive Deficit Procedure

In case of an excessive deficit, a deviation from the MTO or from the adjustment path, the Commission can activate the corrective phase of the SGP and recommend during the European semester the opening of an excessive deficit procedure. The council automatically adopts the recommendation against a Eurozone Member State unless a qualified majority of the States oppose to it following the procedure stated in the Fiscal compact. For the Non-Euro Members, the council has to agree on the Commission's recommendation with a qualified majority of the voting.
A lot of countries such as Belgium or Italy were subjected to that procedure. Only 2 countries have never seen an excessive deficit procedure launched against them: Estonia and Sweden.