1. EU economic governance: what role for European regions? “Strengthening the role of regional parliaments in EU affairs” Committee of the Regions 2 July 2014 Nicolas Brookes, CPMR Director

2. The Stability and Growth Pact STABILITY AND GROWTH PACT: - max 3% deficit - max 60% sovereign debt Coordination of economic and budgetary policies (European semester) Mechanisms of compliance (sanctions) Reinforced role of the Commission (oversees national budgets)

3. The European Semester: how does it work?  October: Eurozone countries submit draft budgets for following year to the Commission  November: Commission publishes Annual Growth Survey  April: Member States submit National Reform Programmes  June: Commission publishes Country Specific Recommendations  July: Council adopts Country Specific Recommendations  Rest of the year: implementation of the recommendations

4. Three key issues  Subsidiarity : European Semester results in recommendations made on policies of traditional competence to local and regional government  Clash between stability and growth policies: EU economic governance reforms incompatible with EU investment policies (mainly Cohesion Policy)  Multilevel governance : no mechanism for regions to input into EU economic governance

5. Subsidiarity left aside?  Policy areas covered by the European Semester include employment, housing, innovation, energy, social inclusion but also internal ‘governance’ issues !  Examples:  ‘The coordination between the centre and the autonomous regions still poses a risk to effective delivery’. 2013 Annual Growth Survey on Spain regarding active labour market policies  ‘Financing to better target benefits addressing poverty and social exclusion to all southern regions will depend on the reprogramming of national contribution to EU structural funds’. 2013 AGS on Italy  ‘Strengthen expenditure control by adopting binding multiannual spending ceilings for local, regional and central government which are consistent with the overall medium-term general budget targets’ 2013 CSR to Denmark

6. CPMR messages  Many Country Specific Recommendations (CSRs) assume a one size fits all to policy implementation in the Member States  Some CSRs are about institutional reform involving infra- national relationships (e.g, relationships between regions and their central governments) and public administration reform ; others even impose budgetary controls on local and regional authorities (Denmark)  Mechanism to allow regional characteristics and challenges to be fed in to the Annual Growth Survey and eventually the Country Specific Recommendations would be welcome... Territorial dimension for EU economic governance!

7. What about growth policies?  EU economic governance ambition is to ‘safeguard sound public finances’… Stability but no Growth ?  Connection between Regional Policy (ERDF investments, ESF grants...) and EU Economic Governance = macroeconomic conditionality  Funds can be suspended if a Member State fails to meet its EU economic governance objectives  Hungarian precedent: €495 million Cohesion Fund suspended in March 2012 due to the country’s failure to address its excessive government deficit

8. Stability or growth?  Structural funds rely on match-funding from national (or regional) sources...  … but national public investments (including match- funding for structural funds) are bound to Stability and Growth Pact ‘obligations’ (country-specific medium- term objective (MTO)  Decision making process for policy recommendations under the Macroeconomic Imbalance Procedure is solely based on economic indicators (not social, environmental, territorial)  This is an issue for countries in the Excessive Deficit Procedure with large Structural Funds envelope for 2014 – 2020 !

9. The investment clause  Commission introduced ‘investment clause’ in July 2010 to exclude certain ‘priority’ investments from the limits of the Stability and Growth Pact  Italy proposed to earmark €4bn for 2014 budget for co- financing structural funds (infrastructure investment, fight againt poverty and social inclusion), but application was rejected … Contradiction between EU policies, and risk for Cohesion Policy on the long term !

10. CPMR messages  Obvious inconsistency between EU Cohesion Policy (and funds at the disposal of regions to support investment) and the rules of EU economic governance, which are about restoring stability  Macroeconomic surveillance and EU economic governance process should be more transparent (IMF, Member State forecasts different from Commission forecasts)  Investment clause should be reinforced : all public investments match funding EU funds should be excluded from limits of Stability and Growth Pact