Introduction

When European Council agreed and started the new Europe 2020 strategy, which was the main plan in order to respond to the financial crisis and to follow the Lisbon Strategy that was expiring. The main idea was to promote smart, sustainable and inclusive growth within the European Union member states. There was also defined five headline goals in the fields of employment, Research and Development (R&D) innovation, climate change/energy, education and social exclusion. [1]

When European Union is examined, it may seem however far from being uniform in the policies addressed by the EU2020 headline goals. The Treaty of Lisbon determines the European Unions exclusive competency as regards competition, monetary policy for those Member States whose currency is the euro and the common commercial policy, shared competency for internal market, social policy, economic, social and territorial cohesion, environment and energy. Although, it is problematic for the European Union to set economic and employment policies for its Member States. Therefore, there was a need for some “overseer” tool to be created – and it was European Semester. It is designed to coordinate and harmonise Member States policies in this field. Against this background, the European Semester as a new key element of Economic Governance started in January 2011 with the objective to provide “ex-ante policy co-ordination”. Means that plans for the most important economic policy reforms are assessed and discussed at EU level before final decisions are taken at national level. In this process, the Commission and Council of Ministers can suggest changes to the plans. Major economic reforms in one Member State can cause economic spillover effects on other Member States. Such spillover effects are all the more relevant in an Economic and Monetary Union, as the crisis has underlined. Major economic reforms can produce economic spillover effects on other Member States via trade and competitiveness and via financial markets.[2]

In this paper will be examined the newly adopted European Semester, defining the main goal, the process of implementation of it for Member States and conclusion about its effectiveness.

Terms of References:

1. Introduce with the material online from EUROPA website and other official sources, i.e. Eurodaconia;

2. Examine the literature and give reasoned explanation and judgment over the European Semester;

3. Provide with summary and conclusion about the European Semester.

Defining the European Semester

Nowadays there’s a lot of questions about the newly introduced system of European Semester. Some say that is one of the amongst the most important tools which civil society organizations have at their disposal to bring about social change.

All Member States have committed to achieving the Europe 2020 targets and have translated them into national targets. But only if the individual efforts of all countries are coordinated and focused, can they result in the desired impact on growth.

Therefore, the European Union has set up a yearly cycle of economic policy coordination called the European Semester. Each year, the Commission undertakes a detailed analysis of EU Member States' plans of budgetary, macroeconomic and structural reforms and provides them with recommendations for the next 12-18 months.

The recent crises and the risk for the stability of the euro area have underlined vividly the interdependence and exposed the vulnerability of Member States, in particular inside the euro area. The European Union and Member States have taken coordinated and determined action: This included not only short-term measures to stabilise the financial sector, revitalise the economy or ensure the solvency of Greece and the stability of the Eurozone, but it also entailed the setting up of a medium- and long-term vision to put Europe on the path of smart, sustainable and inclusive growth ("Europe 2020"). Now the time has come also to draw far-reaching lessons concerning the way economic policies are dealt with. Therefore, the Commission proposes to reinforce decisively the economic governance in the European Union. The aim of the Communication is to strengthen the functioning of the Stability and Growth Pact and extend surveillance to macro-economic imbalances. It proposes to align national budget and policy planning through the establishment of a "European Semester" for economic policy coordination, so that Member States would benefit from early coordination at European level as they prepare their national budgets and national reform programmes. Finally, the Commission considers it to be a first priority to make the European stabilisation mechanism decided by ECOFIN (Economic and Financial Affairs Council). Based on this experience, the Commission intends in the medium-to-long term make a proposal for a permanent crisis resolution mechanism.[3]

The main aim of the European Semester is to ensure co-ordination of the budgetary and economic policies that are defined under the Europe 2020 strategy. It is an annual cycle of political activities which primarily involves the European Commission and EU Member State governments, but it also relies on the participation of other actors:

· EU institutional bodies – European Parliament and the Council of Ministers;

· International NGO (non-governmental organizations) platforms;

· Networks and local grassroots organizations.

The European Semester consists of four main core items:[4]

1. The Annual Growth Survey – The first step of each new European Semester starts in November. It is called the Annual Growth Survey and it is drafted by the European Commission;

2. National Reform Programme – the second step in the European semester is marked by the creation of National Reform Programmes: each EU member state needs to submit one by 15 April, which practically means that the European Commission receives 28 different NRPs within one month. Basically, NRPs are national responses to the EU-wide Annual Growth Survey. Sets out national economic and social targets for the upcoming year, taking into account the Europe-wide priorities by reaching the Europe 2020 targets;

3. Country – Specific Recommendations (CSR) In the months April and May, the third main step takes place. The European Commission evaluates the different NRPs and formulates country specific recommendations for each EU member states. These CSRs are intended to influence the overall policy direction your country is taking – specific Latvia’s recommendations will be examined in the research part;

4. CSR Implementation – from July onwards, a final and very crucial step takes place: following the adoption of the CSRs, EU member states are invited to implement them. The CSRs should be taken into consideration whilst each EU member state sets its national budget for the upcoming year, to ensure that there is an adequate financial basis for any required policy reforms. And then, towards the end of the same year, the cycle begins anew.

The Annual Growth Survey – helpful hand for each Member State

Regarding the issue of fiscal consolidation, the Annual Growth Survey states that Member States have the conflicting priorities of discipline versus flexibility, namely on the one hand the need to support the credibility of monetary policy while on the other hand the need for economic stimulus. Therefore, Member States have to adjust their structural budget balances of more than 0,5% of GDP in order to bring debt ratios close to the 60% requirement. On the track to sustainable public finances, all Member States are required to “keep public expenditure growth firmly below the rate of medium term trend GDP growth, while prioritising sustainable growth-friendly expenditures in areas such as research, innovation education and energy.”[5] According to the actual debt ratio, Member States are given additional recommendations.

AGS refer to excessive surplus/deficit current account that the Member States have to correct. Whereas adjusting the wage-setting arrangements, especially the wage-indexation mechanisms appear as one of the lever that the Member States running deficit current account may pull, the Euro-Plus-Pact insists very much on that. When drafting its proposals for the country-specific recommendations, the Commission chose to lean on the Euro-Plus-Pact and hereby, discarded non-cost factors such as the knowledge intensity of export or the geographical distribution of export. Furthermore, the Commission neglected to address Member States with large current account surpluses although it urged them in the AGS to "identify and tackle the sources of persistently weak domestic demand".

According to the Annual Growth Survey, the stability of the financial sector must be reinforced by regulation and supervision as well as restructuring of banks. The latter recommendation should ensure its “long-term viability and (…) a properly functioning credit channel.”[6]

In order to align Member States on the achievement of the EU2020 targets, the

Commission suggests a set of measures and instruments grouped under the headings of “making work more attractive” and “getting unemployed back to work” in its Annual Growth Survey. Under the former heading, the Commission urges all Member States in this document to shift “taxes away from labour”, to gear “tax benefit systems, flexible work arrangements and childcare facilities” as well as to “reduce undeclared work.” Under the latter heading, the Commission suggests three main instruments: [7]

1. provide incentives to work through support of self-employment, time-limited support, conditionality linking training and job search;

2. ensure coherence between the level of income taxes and unemployment benefits;

3. adapt the unemployment insurance system.

According to the European Commission within the AGS, labour market rigidities restrain the access to labour markets. At the same time, education is considered as variable to improve access to it especially for young people. On the flexibility side, the European Commission suggested in its Annual Growth Survey to diminish “labour market rigidity” and to promote education in order to help young people to enter the job market. Moreover, a more simple recognition procedure of professional qualifications should facilitate free circulation of “citizens, workers and researchers.” Moreover, more open-ended contracts should replace temporary or precarious contracts.[8]

Specific Country Recommendations – Latvia

Introducing with the new Countries report – 2015, the author was amazed how detailed and explained it was. It is one of the tool for citizens in Latvia to assess the economic growth and follow within the steps of policy makers in his own country – to check if the targets are completed or not (being in progress).

A measurement will be given – compared against 2014 commitments for Lavia and reached goals of it.

In the following table, authors explains the meaning of the levels of progress (assessment level): [1]

· No progress: The Member State has neither announced nor adopted any measures to address the CSR. This category also applies if a Member State has commissioned a study group to evaluate possible measures.

· Limited progress: The Member State has announced some measures to address the CSR, but these measures appear insufficient and/or their adoption/implementation is at risk.

· Some progress: The Member State has announced or adopted measures to address the CSR. These measures are promising, but not all of them have been implemented yet and implementation is not certain in all cases.

· Substantial progress: The Member State has adopted measures, most of which have been implemented. These measures go a long way in addressing the CSR.

· Fully addressed: The Member State has adopted and implemented measures that address the CSR appropriately.

Evaluating the Latvia’s situation in specific recommendation process, author assumes that overall country has only some progress where the Member State has announced or adopted measures to address the CSR. These measures are promising, but not all of them have been implemented yet and implementation is not certain in all cases.

Conclusion

After the recent economic crisis, there was a need for stronger economic governance and better policy coordination tool between the EU Member States.

In a Union of highly integrated economies, enhanced policy coordination can help prevent discrepancies and contribute to ensuring convergence and stability in the EU as a whole, and in its member states

As a part of a wider reform of the EU economic governance, the European Council decided to establish the European Semester in 2010. The legal basis for the process is the so-called 'six-pack' - 6 legislative acts that reformed the Stability and Growth Pact. The first European Semester cycle took place in 2011.

Main key objectives for European Semester:

· to contribute to ensuring convergence and stability in the EU

· to contribute to ensuring sound public finances

· to foster economic growth

· to prevent excessive macroeconomic imbalances in the EU

· to implement the Europe 2020 strategy

Monitoring progress and ensuring the active involvement of EU countries are key elements of the strategy. The European Semester, an annual cycle of macro-economic, budgetary and structural policy coordination. The key stages in the European semester are as follows:

· In January, the Commission issues its Annual Growth Survey, which sets out EU priorities for the coming year to boost growth and job creation.

· In February, the Council of the European Union and the European Parliament discuss the Annual Growth Survey.

· In March, EU Heads of State and Government (i.e. the European Council) issue EU guidance for national policies on the basis of the Annual Growth Survey.

· In April, Member States submit their plans for sound public finances (Stability or Convergence Programmes) and reforms and measures to make progress towards smart, sustainable and inclusive growth (National Reform Programmes).

· In May, the Commission assesses these Programmes.

· In June, the Commission provides country-specific recommendations as appropriate. The European Council discusses and endorses the recommendations.

· In July, the Council of the European Union formally adopts the country-specific recommendations.

· In Autumn, the Governments present the budget draft to their Parliaments.

[1]COMMISSION STAFF WORKING DOCUMENT Country Report Latvia 2015. Available online: http://ec.europa.eu/europe2020/pdf/csr2015/cr2015_latvia_en.pdf [Accessed: 2015.05.17.]

[1] Eugene Eteris. “Modern European Law For Businessmen: Lisbon Treaty in Action”. RSU. Rīga: 2012. P. 14 - 16

[2] Next steps towards a deep and genuine Economic and Monetary Union: Early co-ordination and contractual arrangements. Available online: http://europa.eu/rapid/press-release_MEMO-13-259_en.htm [Accessed: 2015.05.17.]

[3]Mastering economic interdependence: Commission proposes reinforced economic governance in the EU IP/10/561 Brussels, 12 May 2010 http://europa.eu/rapid/press-release_IP-10-561_en.htm?locale=fr [Accessed: 2015.05.17.]

[4] EUROPEAN SEMESTER. Available online: http://eurodiaconia.org/toolkit-european-semester/#link-know-europeansemester [Accessed: 2015.05.17.]

[5] European Commission, Annual Growth Survey COM (2011) 11 final, op.cit., 12/01/2010, p.4,

http://ec.europa.eu/europe2020/pdf/en_final.pdf (Accessed: 2015.05.17.]

[6] European Commission, Annual Growth Survey COM (2011) 11 final, op.cit., 12/01/2010, p.5,

http://ec.europa.eu/europe2020/pdf/en_final.pdf [Accessed: 2015.05.17.]

[7] Ibid, p.6.

[8] European Commission, COM (2011) 11 final, Annual Growth Survey, op.cit., 12/01/2010, p.8,

http://ec.europa.eu/europe2020/pdf/en_final.pdf [Accessed: 2015.05.17.]