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Economic and fiscal coordination

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27.08.2015 - Article

In order to avoid national economic policies becoming too divergent and so that governments are informed of imbalances or negative developments in good time, the states’ economic and fiscal policies are coordinated at EU level within what is known as the European Semester.

Fiscal policy is coordinated through the Stability and Growth Pact (SGP), which is oriented towards strict criteria regarding member states’ level of debt and public deficit, as well as through an annual assessment of national draft budgetary plans. The SGP encompasses the most important instruments for both monitoring fiscal policies (preventative measures) and correcting them should excessive deficits develop (corrective measures).

The Fiscal Compact, the fiscal component of the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union, supplements and buttresses the SGP. In this Treaty, 25 member states (with the exception of the United Kingdom, the Czech Republic and Croatia) pledged to transpose uniform and binding budgetary rules into their national legal systems. The Fiscal Compact aims to enshrine an upper threshold for the structural deficit of 0.5% of gross domestic product – if at all possible in the constitution (the “debt brake”) – in order to maintain sustainable budgets in the long run.

The economic state of the European Union is continuously and comprehensively analysed by the European Commission. Its economic forecasts focus on the EU, the individual member states and the eurozone, and also include projections for other important economic areas as well as countries seeking to join the EU. The forecasts are published three times a year, in spring, autumn and winter.

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These forecasts serve as a basis for different monitoring processes for the European economy – including within the European Semester.

The adoption of the Annual Growth Survey initiates the European Semester and thus the coordination of economic and budget policies. The Annual Growth Survey outlines what more can be done at EU level to help member states return to higher growth rates:

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In addition to this, the Macroeconomic Imbalance Procedure (MIP) aims to identify and prevent negative developments at the macro-economic level. It is triggered by the European Commission’s Alert Mechanism Report.

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