Creating Economic Growth in the EU
Synergies between EU and National Spending and EU Objectives
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The European Commission's Annual Growth Survey (AGS) sets out priorities for EU fiscal and economic policymaking. Based on the AGS and member states’ economic progress reports, the Commission then proposes country-specific recommendations (CSRs) to achieve fiscal and economic progress.
Research found that a notable share of the EU budget is devoted to AGS priorities, but member states do not necessarily follow the CSRs. Additionally, synergies between EU and member states’ budgets exist insofar as they both work towards common AGS-related goals. But it is unclear how much the EU budget helps member states’ budgets achieve AGS priorities.
The European Semester is an annual cycle of fiscal and economic policy coordination that has been established in 2011. The Semester starts with the publication of the Annual Growth Survey (AGS), in which the European Commission sets out priorities for fiscal and economic policymaking.
Based on the AGS and member states’ reports on progress in these policy areas, the European Commission proposes country-specific recommendations (CSRs), which are adopted by the Council of the European Union. Guidance under the European Semester is based on: the Stability and Growth Pact, which aims to ensure sustainable public debt and deficit levels; the Integrated Guidelines for economic and employment policies; and the Macroeconomic Imbalance Procedure, which aims to prevent and correct macroeconomic imbalances that threaten the functioning of the Economic and Monetary Union.
The European Parliament Committee on Budgets commissioned RAND Europe to conduct a study on the synergies between the objectives set out in the Annual Growth Survey and the contribution of the EU budget and national budgets.
There were two main objectives of the study:
- To examine the synergies between the objectives of the AGS and EU budget contributions and measures aimed at enhancing economic growth; and
- To assess the impact of the guidance provided by the CSRs on national budgets with a view to supporting policies to enhance economic growth within the limits of the Stability and Growth Pact.
The project team used a number of methods to conduct the study, including:
- An analysis of EU-level and national-level documentation pertaining to the AGS and CSRs and their implementation;
- An analysis of EU-level and national-level budgetary data and documentation; and
- A review of literature on economic governance in the EU and the impact of policy measures on growth.
The priorities of the AGS are reflected in the EU budget in a variety of ways. A notable share of the EU budget is devoted to AGS priorities, with this appearing to have grown over time, both in absolute terms and as a share of the EU budget.
Despite action at a member state level, there remains room for greater implementation of CSRs. The number of instances where member states have not taken any action or do not even plan to take one remains minimal (six per cent). However, responses to CSRs and implementations noted by member states tend to be ‘works in progress’, with only a fraction of recommendations addressed fully (20 per cent).
Available national budgetary indicators suggest uneven implementation of CSRs, although this data source is subject to multiple limitations. The extent to which national budget allocations changed following the issuance of CSRs varies across member states and policy areas. However, national budget data is an imperfect source due to a possible lack of consistency across years and spending categories.
Synergies between EU and member states’ budgets exist, in a narrow sense, in so far as they both work towards the accomplishment of common AGS-related goals. However, in a broader sense, the extent to which the EU budget helps member states’ budgets with the achievement of AGS priorities remains more difficult to assess.
The study highlighted three important areas for further consideration:
- There is wide consensus that measures adopted in the pursuit of two out of the three priority areas for the AGS (investment and structural reforms) can lead to positive outcomes.
- There are objections about the appropriateness of fiscal consolidation as goals/recommendations, particularly in times of economic downturns.
- There a number of implications from recent evidence on the effects of fiscal consolidation, which suggests that all three AGS priority areas may not always be compatible.
- The concept of European added value could be more strongly embedded in the European Semester and its reporting mechanisms.
- It may be beneficial to embrace a longer-term perspective in the European Semester monitoring and assessments.
- The ongoing evolution of the EU budget in the direction of greater flexibility could have the potential to strengthen its contribution towards AGS priorities and may merit further development.
- Further efforts are needed to address current data limitations.