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European Economic Governance

European coordination of budgetary and economic policy and the position of the Netherlands

The rules applicable to the EU member states’ budgetary and macroeconomic policies have been tightened up and extended since the financial and economic crisis. A complex system of rules and procedures is now in place and the resultant obligations resting on the member states and their parliaments are not always clear. These findings are presented in a recently published report entitled European economic governance; European coordination of budgetary and macroeconomic policy and the position of the Netherlands.

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Report | 09-09-2014

Conclusions

The report presents the following conclusions.

  • EU rules on supervision of the member states’ budgetary policies were not applied in full or consistently between 1997 and 2012.
  • The complexity of European economic governance makes it harder for European institutions to enforce all the rules and agreements.
  • More opportunities have arisen for the EU to exercise supervision and hold member states accountable for their budgetary and macroeconomic policies but the EU has only limited de facto powers to change the member states´ policies. Use of the new macroeconomic imbalance procedure has so far been confined to the detection and prevention phase. On account of the
  • Commission´s discretionary powers, it is uncertain how it will weigh the nature and seriousness of imbalances.
  • It is not immediately clear from the country specific recommendations arising from the European Semester which obligations or agreements a recommendation relates to and whether the obligation or agreement arises from the Stability and Growth Pact, the MEIP or the Europe 2020 strategy and thus how ´urgent´ the recommendation is.
  • In response to the crisis, several countries, including the Netherlands, now debate the following year’s budget earlier and in greater depth than in the past. A formal change in the Netherlands is that the medium-term objective has been defined in greater detail and laid down in the Sustainable Public Finances Act. Furthermore, the two chambers of the States General must in future adopt the national budget before the end of the year.
  • The regular good governance arrangements of democratic scrutiny and accountability in place for the EU 28 do not apply to the same extent to the Eurogroup or its president.
  • The member states’ accountability to the EU institutions is still a work in progress. High priority is being given to strengthening the quality of statistical data used in the EMU accounts.

Recommendations

The audit findings prompted us to make the following recommendations.

  • There is an evident need for clear and simple procedures in the European economic governance process and for the member states to present comprehensive and consistent accounts of their compliance with the agreements.
  • The need for greater transparency and simplification is becoming more important, if only to create the conditions necessary for enforcement to be more effective. Government and parliament should call for greater consistency in European economic governance, the elimination of overlaps and the simplification of procedures wherever possible.
  • A number of steps could be taken in the short term to increase transparency. One would be to prepare a comprehensive statement of the current state of the MEIP and the various parts of the SGP (MTO/EDP) that explains the member states’ compliance with the country specific recommendations in a transparent manner.
  • Standardisation of the structural balance has been given more prominence in European economic governance. The discussion the European Commission has started of the possible harmonisation of reporting systems in the EU is very relevant to this. It would provide more opportunity to make a complete assessment of the sustainability of public finances than at present.
  • Furthermore, assurances must be provided on the quality of the budgetary data used. The member states use such data to account for their balance and debt positions.
  • Specifically for the Netherlands, the quality of financial information used to prepare the Dutch EMU data should be improved.
  • Finally, more attention should be paid to governance in the Eurogroup, particularly regarding democratic scrutiny and accountability. It is particularly important that the Eurogroup and its president are not democratically embedded in the EU institutions. This should be borne in mind if it is decided to appoint a permanent president given the actual tasks and position of the Eurogroup and its president in the architecture of European economic governance.

Response

Response of the Ministers of Finance and Economic Affairs 

The Ministers of Finance and Economic Affairs together responded to our report on behalf of the government on 29 August 2014. They described the complexity of the rules currently in force in the EU and questioned the comprehensive introduction of EPSAS and the need to improve the Dutch EMU figures. It was not necessary, they wrote, to increase the accountability of the president of the Eurogroup.

Court of Audit’s afterword

Regarding the accountability of the president of the Eurogroup, the Court of Audit notes that the informal nature of the Eurogroup is at odds with its influence and the decisions it takes on the most important components of European economic governance, such as the emergency funds, which the euro countries have guaranteed for hundreds of billions of euros. Ultimately it affects parliament’s right to approve the budget.