Economic policy

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4.8 • 13 Ratings

🗓️ 8 February 2019

⏱️ 7 minutes

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Summary

In the EU, although economic policy is the remit of each individual Member State, there is, nevertheless, multilateral coordination of economic policies between Member States. This framework was put severely to the test during the global financial crisis and the European sovereign debt crisis. Partly as a result, recovery in the EU was slower than recovery in the United States, and was not achieved equally by all Member States. Furthermore, it has to a large extent been based on accommodative fiscal and monetary policies that only partly hide underlying signs of fiscal or financial fragility in some Member States. To remedy this, the European institutions began a twofold process in 2011: initiatives were taken to strengthen the current framework for economic governance, and for banking supervision in the euro area while, in parallel, discussion began on possible ways to reduce the economic divergences between Member States, provide incentives for risk reduction and risk-sharing, render the governance process more transparent and ensure democratic accountability. In this latter area, several initiatives – which did not require changes in the EU Treaties – were taken between 2015 and 2017. In summer 2017, discussions on deepening the policy framework for economic and monetary union (EMU) intensified. This process, which was advocated in the five presidents' report (by the heads of the relevant EU institutions) and should be completed by 2025, is currently being considered at Member State level. The current state of play points towards two main orientations, dividing Member States into two groups: those that prioritise risk-sharing measures (such as France), and those that argue instead for further risk-reduction initiatives (for example, Germany). This lack of consensus has so far meant that the European Council has not been able to reach a breakthrough.
https://www.europarl.europa.eu/thinktank/en/document.html?reference=EPRS_BRI(2018)628273

Source: © European Union - EP

Transcript

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0:00.0	Want to know what Europe does for you? Welcome to the European Parliamentary Research Service
0:05.9	podcast on the EU's economic policy. Since the 2008 economic and financial crisis, EU member
0:13.0	states have accelerated works to strengthen economic governance, banking supervision and to reduce
0:18.4	economic divergences between EU countries.
0:20.9	But differences in national approaches on how to complete the economic and monetary union
0:25.2	are stalling progress towards further economic integration.
0:28.4	Want to know more? Stay with us.
0:33.5	While economic policy remains in the realm of individual member states,
0:37.3	EU countries coordinate their national economic policies so they can act together in times of trouble.
0:42.7	And this coordination has been pushed even further by the 19 countries that share the euro as their common currency.
0:48.4	But the 2008 global financial and economic crises exposed serious weaknesses in the EU's economic governance
0:54.9	framework. The deterioration in member states' fiscal positions and increasing debt levels
0:59.8	led investors to lose trust in member states' capacity to maintain sustainable public finances,
1:05.3	causing spreads the difference in the yields of different governments' bonds to rocket up to
1:09.5	unbearable levels. Given the high degree of economic and financial integration and the risk of different governments' bonds to rocket up to unbearable levels.
1:15.1	Given the high degree of economic and financial integration and the risk of spillover effects,
1:19.3	this quickly became a euro area problem requiring euro area solutions.
1:21.6	So two solutions were found at EU level. The first consisted of financial assistance mechanisms to help member states in trouble,
1:26.1	such as the European financial stabilization mechanism, the financial stability facility and the European stability mechanism,
1:32.5	which has become the world's largest multilateral financial institution, with an effective lending
1:36.9	capacity of up to 500 billion euros.
1:39.4	The second solution, which was initiated in 2011 and still ongoing, involves strengthening
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