Summit paves the way for common EU economic policy

Faced with internal financial imbalances exposed by the Greek crisis, EU leaders agreed on Friday (26 March) to strengthen economic policy coordination by defining future common guidelines and issuing early warnings against failing member states, as is already the case for fiscal policy.

"We commit to promoting strong coordination of economic policies in Europe. We consider that the European Council must improve the economic governance of the European Union," reads a compromise text adopted by EU heads of state and government last Friday (26 March) during their spring summit in Brussels.

Spanish Prime Minister Josè Luis Rodriguez Zapatero, holder of the EU's six-month rotating presidency, hailed the agreement on economic governance as a "terrific step forward".

Governance vs. government

The explicit reference to European economic governance was the subject of long negotiations, with some member states, particularly France, preferring to refer to economic 'government' so as to signal the EU's strong intention to move towards a common European economic policy.

The milder concept of 'economic governance,' backed by UK Prime Minister Gordon Brown, finally prevailed in the compromise text adopted to outline an aid plan for Greece. However, 'governance' only features in the English version, with the French version of the statement including the term 'gouvernment economique' instead.

Economic policy as fiscal policy

Although still divided on the terms 'government' and 'governance', EU leaders outlined other ideas in the official conclusions of the European Council.

In addition to retaining what was originally included in the draft common conclusions (EURACTIV 24/03/10), leaders added a clear reference to the "better use" of instruments provided by Article 121 of the Lisbon Treaty.

Article 121 gives the Council the power to "formulate a draft for the broad guidelines of the economic policies of the member states and of the Union". After involving the other European institutions, "the Council shall adopt a recommendation setting out these broad guidelines," reads the article.

So far, member states have for the most part been left free to develop their own economic policies, such as internal trade or industrial policy, provided that they abide by common parameters of fiscal policy, such as debt and deficit rules.

The deal reached on Friday at the EU summit clears the way for Brussels to define and monitor economic policies, rather than fiscal policies alone. This is one of the long-term objectives set by the permanent president of the European Council, Herman Van Rompuy, according to EU diplomats.

A new stability pact?

The effective coordination of European economic policies also implies a system of monitoring the actual application of guidelines agreed within the Council.

Indeed, Article 121 of the Lisbon Treaty provides for setting up a mechanism similar to that of the stability pact, except this one is aimed at supervising economic rather than fiscal policy.

"Where it is established […] that the economic policies of a member state are not consistent with the broad guidelines […] or that they risk jeopardising the proper functioning of economic and monetary union, the Commission may address a warning to the member state concerned," reads Article 121.

A recommendation from the Council might follow, after a decision made by member states via qualified majority and "without taking into account the vote of the member of the Council representing the member state concerned," clarifies the article.

Strengthened discipline for eurozone members

The 16 members of the euro zone are expected to abide by even stricter rules, as underlined in the summit conclusions.

"Coordination at the level of the euro zone will be strengthened in order to address the challenges the euro area is facing," according to the official conclusions of the European Council.

The text explicitly mentions Article 136 of the Lisbon Treaty, which states that the EU Council of Ministers – representing the 27 member states – can adopt measures concerning eurozone countries in order "to strengthen the coordination and surveillance of their budgetary discipline" and "to set out economic policy guidelines for them".

Read more with Euractiv

Sarkozy vows to fight unwinding of EU farm policy

French President Nicolas Sarkozy said yesterday (24 March) he was ready to provoke a crisis in the European Union to prevent a dismantling of farm policy, as he sought to reassure disgruntled farmers in the EU's top agricultural producer.