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Prepared by Angana Banerji, James John, Sergejs Saksonovs and Tao Wu (EUR); Tidiane Kinda (FAD); and, Bergljot Barkbu and Hanni Schoelermann (EUO).
Estimates are derived using the IMF’s EUROMOD multi-economy model. Several recent studies echo these findings, e.g., Anderson et. al. (2014), Barkbu et. al. (2012), ECB (2015a), Hobza and Mourre (2010), Varga and int’Veld (2013).
EU institutions refer to the European Commission (EC), the Council of the European Union (Council) and the European Parliament (Parliament).
Non-euro area countries cannot be sanctioned under the MIP. The framework also does not apply to countries receiving support under financial assistance programs.
Europe 2020 targets: (i) 75 percent employment rate (20–64 years), (ii) 3 percent of EU GDP investment in R&D, (iii) energy sustainability, (iv) lower rate of early school leaving, and, (v) reduction in poverty and social exclusion.
The EIP entails recommendations and decisions that are different from the MIP preventive arm, and more frequent monitoring and assessment. It remains to be seen how an EIP would be aligned with the standard EU Semester.
The European Commission (2014a) notes that the experience with the framework has been limited and remains untested due to the limited time span since its entry into force. It notes that progress on reforms has been stronger than under the Lisbon process.
According to the EC, there has been significant progress in financial sector, insolvency, and pension reforms where there was greatest need after the crisis, but less progress in service sector and some product market reforms. This paper does not evaluate the strength of the reforms envisaged in the CSRs other than to note that there is some overlap between the priority measures proposed by the IMF, EC and the OECD in various policy areas.
Under the SGP’s preventive arm, countries could receive a warning and ultimately a financial sanction in form of an interest-bearing deposit (Council decision by RQMV) if the failure to implement structural reforms under SGP flexibility results in a significant deviation from the medium-term objective or the path towards it. In the corrective arm, such a failure could be considered an aggravating factor when assessing effective action, leading to stepped-up procedures with temporary suspension of parts of ESI funds (RQMV decision for the adoption of the first sanction). Persistent non-compliance could to lead to financial sanctions of up to 0.7 percent of GDP for euro area countries.
The EC is legally obliged to propose suspension of payments or commitments if the conditions for suspension are met. Payments are only suspended in case of significant non-compliance and if immediate action is sought.
The idea of benchmarking is not new. As far back as December 2003, the EU Council of Ministers adopted a shortlist of 14 structural indicators to be used in assessing national reform programs (Ioannou et. al., 2008). Benchmarks were also under consideration during the 2010–11 EU governance reforms. More recent proposals have been made by Padoan and Schäuble (2014), Dijsselbloem (2015) and Juncker et. al. (2015), whereas Draghi (2014) argues for greater specificity in reforms. Outcome-based targets are already used to some extent (e.g., headline targets in Europe 2020, numerical targets in several EU directives).
These can be based on: (i) on qualitative information relying on questionnaire responses or opinion surveys; (ii) quantitative information; and, (iii) qualitative indicators based on aggregations of quantitative indicators. The EC already uses similar benchmarks for technical analysis of the impact of reforms and progress toward EU Directives (e.g., Monteagudo et. al, 2012 uses World Bank Doing Business Indicators (WBDB) to assess the potential economic impact of setting up national “points of single contact” for services activities and a “closing the gap” approach with best performing EU countries to assess the actual and potential additional impact of the Services Directive).
CSRs have been streamlined in 2015.
Extending the EU’s powers to sanction countries under the preventive arm of the MIP, similar to the SGP, could simplify the framework. However, CSRs are not legally binding, and penalties under the preventive arm may violate the principle of “proportionality” as long as the EU’s powers are restricted to coordination.
Under the EDP, countries must present an Economic Partnership Program, outlining structural reforms for a durable correction of the deficit, while those receiving EU financial assistance prepare a Macroeconomic Adjustment Program also including structural reforms.
Medium-term expenditure frameworks with rolling spending limits could also be considered (e.g., Sweden).
The recently announced “Structural Reform Support Service” goes in this direction (European Commission Statement/15/5218).
Also advocated by Allard et. al., 2010. More recently, Sapir and Wolff (2015) propose the creation of a network of independent national competitiveness councils (modeled after Belgium) at the level of the euro area to ensure that wage developments are in line with those in trading partner countries and prevent competitiveness problems.
Portugal’s 2014 CSR measure for “a functionally independent central evaluation unit at the government level, which assesses and reports every six months on the implementation of these reforms, including consistency with the ex-ante impact assessment, with corrective action if needed” goes in this direction.
Grants to state and local governments, excluding direct spending by the federal government in states, or taxes paid by state residents to the federal government. Data are from the Office of Management and Budget and the Congressional Budget Office.