European Scrutiny Committee Contents


9 Europe 2020 Strategy: integrated guidelines

(a)

(31573)

9231/10

SEC(10) 488

(b)

(31574)

9233/10

COM(10) 193


Draft Council Recommendation on broad guidelines for the economic policies of the Member States and of the Union: Part I of the Europe 2020 integrated guidelines

Draft Council Decision on guidelines for the employment policies of the Member States: Part II of the Europe 2020 integrated guidelines

Legal base(a) Article 121 TFEU; —; QMV

(b) Article 148(2) TFEU; consultation; QMV

Documents originated27 April 2010
Deposited in Parliament25 May 2010
Department(a) HM Treasury

(b) Work and Pensions

Basis of consideration(a) EM of 9 June 2010 and Minister's letter of 20 July 2010

(b) EM of 8 June 2010

Previous Committee ReportNone
Discussion in Council(a) ECOFIN 8 June 2010, European Council 17-18 June 2010, ECOFIN 13 July 2010

(b) Employment, Social Policy, Health and Consumer Affairs Council 7 June 2010, European Council 17-18 June 2010, further consideration possibly in September 2010

Committee's assessmentLegally and politically important
Committee's decisionFor debate in European Committee B, after receipt of further information

Background

9.1 In 2000 an action plan, known as the Lisbon Agenda or Lisbon Strategy, was launched to "make Europe, by 2010, the most competitive and the most dynamic knowledge-based economy in the world". In 2005 the action plan was relaunched for the remainder of the decade as the Lisbon Strategy for Jobs and Growth. As part of the relaunch two-part "integrated guidelines" were agreed. They contained broad guidelines for the economic policies of the Member States and the then Community and guidelines for the employment policies of the Member States. The guidelines were to be taken into account by Member States in preparing and annually updating their National Reform Programmes. Each Member State reported annually on its reform programme and received non-binding recommendations, proposed by the Commission and endorsed by the Council, for future policies.

9.2 In March 2010 the Commission proposed a "Europe 2020 Strategy" for the coming decade, to follow on from the Lisbon Strategy. It set out the challenges facing the EU over the coming decade and the need for "a strategy to turn the EU into a smart, sustainable and inclusive economy delivering high levels of employment, productivity and social cohesion" and proposed:

  • policy priorities that focused on smart, sustainable and inclusive growth;
  • seven flagship initiatives to deliver on those policy priorities;
  • mobilising EU instruments and policies such as the single market to pursue the strategy's objectives; and
  • a governance structure that included five headline targets that the EU should aim to achieve by 2020.

The strategy was to continue with integrated guidelines and the associated reporting and monitoring process.[41] The plan for a strategy was endorsed by the European Council in March 2010.[42] The Lisbon Treaty contains the legal base for the integrated guidelines — Article 121 TFEU for broad economic policy guidelines and Article 148 TFEU for employment policy guidelines. The latter article provides that the employment guidelines must be consistent with the economic guidelines.

9.3 Alongside the Lisbon Strategy has been the Growth and Stability Pact. The Pact, adopted in 1997, emphasised the obligation of Member States to avoid excessive government deficits, defined as the ratio of a planned or actual deficit to gross domestic product (GDP) at market prices in excess of a "reference value" of 3%. Each year the Economic and Financial Affairs Council (ECOFIN) issues an Opinion on the updated stability or convergence programme of each Member State. These Opinions, which are not binding on Member States, are based on a recommendation from the Commission. The economic content of the programmes is assessed with reference to the Commission's current economic forecasts. If a Member State's programme is found wanting, it may be invited by ECOFIN, in a Recommendation, to make adjustments to its economic policies, though such Recommendations are likewise not binding on Member States. This whole procedure is essentially the Pact's preventative arm. On the other hand, the Pact also endorsed a dissuasive or corrective arm involving action in cases of an excessive government deficit — the excessive deficit procedure provided for in Article 126 TFEU (formerly Article 104 EC) and the relevant Protocol. The March 2010 European Council, in endorsing the Europe 2020 Strategy said that "The timing of the reporting and assessment of the National Reform Programmes and Stability and Convergence Programmes should be better aligned, in order to enhance the overall consistency of policy advice to Member States".[43]

The documents

9.4 These two documents present the Commission's proposals for the integrated guidelines for the Europe 2020 Strategy. It suggests the guidelines should remain largely stable until 2014 to ensure a focus on implementation. The Commission proposes ten guidelines:

  • Guideline 1: Ensuring the quality and the sustainability of public finances;
  • Guideline 2: Addressing macroeconomic imbalances;
  • Guideline 3: Reducing imbalances in the euro area;
  • Guideline 4: Optimising support for research and development and for innovation, strengthening the knowledge triangle and unleashing the potential of the digital economy;
  • Guideline 5: Improving resource efficiency and reducing greenhouse gases emissions;
  • Guideline 6: Improving the business and consumer environment and modernising the industrial base;
  • Guideline 7: Increasing labour market participation and reducing structural unemployment;
  • Guideline 8: Developing a skilled workforce responding to labour market needs, promoting job quality and lifelong learning;
  • Guideline 9: Improving the performance of education and training systems at all levels and increasing participation in tertiary education; and
  • Guideline 10: Promoting social inclusion and combating poverty.

Guidelines 1-6 are the proposed broad economic policy guidelines, which come within the remit of the Economic and Finance Affairs Council (ECOFIN), and Guidelines 7-10 the employment policy guidelines, which come within the remit of the Employment and Social Policy Council.

9.5 The details of the first six proposed guidelines are set out in document (a), which presents a draft Recommendation to Member States for adoption by the Council. The proposed guidelines, which are annexed to the draft Recommendation, include:

Guideline 1: Ensuring the quality and the sustainability of public finances

  • calls for Member States to "implement budgetary consolidation strategies under the Stability and Growth Pact and in particular recommendations addressed to Member States under the excessive deficit procedure, and/or in memoranda of understanding, in the case of balance-of-payments support";
  • calls for Member States, in designing and implementing budgetary consolidation strategies to favour taxes that do not harm growth and employment and, where taxes may have to rise, for this to be done in conjunction with making tax systems more growth friendly by shifting the tax burden from labour to other tax bases and to prioritise growth-enhancing expenditure items such as education, skills and employability, research and development and innovation and investment in networks (high-speed internet and transport interconnections);
  • calls for Member States to strengthen national budgetary frameworks, enhance the quality of public expenditure and improve the sustainability of public finances, through a combination of a fast pace of debt reduction, reform of age-related public expenditure and raising effective retirement ages;

Guideline 2: Addressing macroeconomic imbalances

  • an argument that "Member States should avoid unsustainable macroeconomic imbalances, arising notably from developments in current accounts, asset markets and the balance sheets of the household and corporate sectors. Member States with large current account imbalances rooted in a persistent lack of competitiveness or prudential and taxation policies should address the underlying causes by acting on fiscal policy, on wage developments, on structural reforms relating to product and financial services markets, on labour markets, in line with the employment guidelines, or on any other relevant policy area";

Guideline 3: Reducing imbalances in the euro area

  • a proposal that "Euro area Member States should regard large and persistent divergences in current account positions and other macroeconomic imbalances as a matter of common concern and take action to reduce the imbalances where necessary" and that "macroeconomic imbalances should be regularly monitored within the Eurogroup, which should propose remedial actions when needed";

Guideline 4: Optimising support for research and development and for innovation, strengthening the knowledge triangle and unleashing the potential of the digital economy

  • calls for Member States to review national (and regional) research and development and innovation systems, so as to ensure adequate and effective public investment and to orient them towards higher growth while addressing major societal challenges (for example energy, resource efficiency, climate change, social cohesion, ageing, health, and security);
  • calls for Member States' research and development and innovation policies to be set within an EU context in order to enhance opportunities for pooling public and private resources in areas with EU value added, exploiting synergies with EU funds and, in line with proposed Guidelines 8 and 9, for Member States to equip people with a broad range of skills needed for innovation in all its forms and to ensure a sufficient supply of science, mathematics, and engineering graduates;
  • a link to the EU headline target, agreed at the March 2010 European Council, and on the basis of which Member States will set their national targets, that by 2020 3% of the EU's GDP should be invested in research and development and to the proposed new indicator — still being developed — that would reflect research and development and innovation intensity;

Guideline 5: Improving resource efficiency and reducing greenhouse gases emissions

  • calls for Member States to decouple economic growth from resource use, turning environmental challenges into growth opportunities and making efficient use of their natural resources;
  • calls for Member States to reduce emissions through making extensive use of market-based instruments, including taxation, to support green growth and jobs;
  • a link to the EU headline targets, agreed at the March 2010 European Council, and on the basis of which Member States will set their national targets, to reduce by 2020 greenhouse gases emissions by at least 20% compared to 1990 levels or by 30%, if the conditions are right, to increase the share of renewable energy sources in final energy consumption to 20% and to increase energy efficiency by 20%;

Guideline 6: Improving the business and consumer environment and modernising the industrial base

  • calls for Member States to put in place predictable framework conditions and ensure well-functioning, open, and competitive goods and services markets, particularly through fostering single market integration and effective implementation and enforcement of single market and competition rules and developing the necessary physical infrastructure; and
  • calls for Member States to support small and medium-sized enterprises, and a modern, diversified, competitive, resource- and energy-efficient industrial base, partly by facilitating any necessary restructuring in full compliance with EU competition rules and other relevant rules.

9.6 The details of the four proposed employment guidelines are set out in document (b), which presents a draft Decision for adoption, after consultation with the European Parliament, by the Council. The Decision would require Member States to take account of the guidelines in their employment policies. Illustrative examples of what is suggested in the guidelines are:

  • for Guideline 7: Increasing labour market participation and reducing structural unemployment —making full use of "flexicurity,"[44] reviewing tax and social security systems to remove obstacles to employment and disincentives to take paid work and ensuring the provision of care for children and other dependents;
  • for Guideline 8: Developing a skilled workforce responding to labour market needs, promoting job quality and lifelong learning — promoting education and training to improve productivity and employability and to equip people with the knowledge and skills needed to meet employers' changing demands;
  • Guideline 9: Improving the performance of education and training systems at all levels and increasing participation in tertiary education — taking action to reduce the number of children who leave school prematurely, to improve the accessibility and relevance of education and training and to develop partnerships between training and work; and
  • Guideline 10: Promoting social inclusion and combating poverty — improving employment opportunities, ensuring equal opportunities, removing unfair discrimination in employment and making full use of the European Social Fund.

9.7 The draft Council Recommendation, document (a), was agreed by ECOFIN on 8 June 2010. The draft Council Decision, document (b), was agreed by the Employment, Social Policy, Health and Consumer Affairs Council on 7 June 2010. Both documents were considered by the European Council on 17-18 June 2010 with subsequent further consideration by the appropriate functional Councils — that is adoption of the draft Recommendation, on 13 July 2010, and further consideration of the draft Decision after consultation with the European Parliament, possibly in September 2010.

The Government's view

9.8 In his Explanatory Memorandum about the draft Recommendation, document (a), the Commercial Secretary to the Treasury (Lord Sassoon) first says that during the negotiations the approach of the Government has been to seek to ensure that surveillance of Member States' policies in line with these guidelines does not expand or alter the competencies set out in the Treaties. He continues that:

  • the Government welcomes the Commission's proposals as a useful starting point for the negotiations on the broad economic policy guidelines, including their narrower focus than under the current Lisbon Strategy (which had 24 guidelines); and
  • the economic and financial crisis has severely impacted on Europe's growth prospects, and it is critical that the EU and its Member States undertake the structural reforms needed to promote growth in Europe.

9.9 The Minister tells us that during the negotiations on the broad economic policy guidelines, the Government's approach has been to seek to amend the broad economic policy guidelines, so that they:

  • highlight the action needed to promote growth in Europe and its Member States;
  • are consistent with the objectives as set out by the Government in its Coalition Agreement;
  • respect the principles of subsidiarity, including with respect to education policy;
  • fully respect the integrity of the Stability and Growth Pact; and
  • do not prejudice negotiations on the EU budget review and future EU budgets.

He says that the Government has been pleased at the direction that these negotiations have taken the broad economic policy guidelines in, for example:

  • tempering the language on the composition of national expenditure and revenue to make it less prescriptive (Guideline 1);
  • removing language that could have prejudiced negotiations on the EU budget review and future EU budgets (all Guidelines);
  • material on addressing macroeconomic imbalances (Guidelines 2 and 3);
  • adding references to EU level action to complement Member State action to improve resource efficiency and reduce greenhouse gases (Guideline 5); and
  • the inclusion of positive material on the single market and administrative burdens (Guideline 6).

9.10 The Minister reports that:

  • at ECOFIN on 8 June 2010 the broad economic policy guidelines were agreed under qualified majority voting, with a UK abstention;
  • the Government issued a Minute Statement at that meeting, which read "The United Kingdom abstention on the Broad Economic Policy Guidelines (BEPGs) reflects a parliamentary scrutiny reservation on this item. The United Kingdom is also reviewing the language and implications of the education elements in the innovation guideline of the BEPGs and reserves the right to return to the issue";
  • the specific text on education (at the end of the second paragraph of Guideline 4 on innovation) reads "In line with guidelines 8 and 9, Member States should equip people with a broad range of skills needed for innovation in all its forms, including eco-innovation, and should seek to ensure a sufficient supply of science, mathematics and technology graduates"; and
  • the Government is considering the implications of this language and whether it could give rise to detailed recommendations on UK education policy.

9.11 In his letter the Minister says the broad economic policy guidelines, document (a), were politically endorsed at the European Council on 17 June 2010 and were formally adopted by the ECOFIN Council on 13 July 2010.[45] He says that the Government at this meeting signalled agreement for the broad economic policy guidelines, overriding scrutiny in this House, that he regrets that as we had not been appointed we did not have the opportunity to complete scrutiny on this document, but that it was important for the UK to play an active role on this important issue at the EU level.

9.12 The Minister also tells us, in relation to the Government's review of the language and implications of the education elements in the earlier draft of the broad economic policy guidelines, that the European Council was clear in politically endorsing them that any recommendations following the guidelines "shall be fully in line with relevant Treaty provisions and EU rules and shall not alter Member States' competences, for example in areas such as education."[46]

9.13 The Minister concludes that the Government welcomes the adoption of the broad economic policy guidelines as an important part of the Europe 2020 strategy and wider EU economic governance framework, which can contribute towards EU economic recovery.

9.14 On the draft Council Decision, document (b), the Minister of State for Employment, Department for Work and Pensions (Chris Grayling) says that the employment policy guidelines are not binding on the UK, but adds that if the Council were to make any recommendations after considering the UK's annual employment report, the Government would consider them. The Minister tells us that the guidelines were agreed at the Employment, Social Policy, Health and Consumer Affairs Council on 7 June 2010, but that the Government abstained pending its consideration of the whole Europe 2020 Strategy package.

Conclusion

9.15 The potential impact of the integrated guidelines for the Europe 2020 Strategy and for EU commentary on Government policies is important. We think the Government should be examined about that potential in a debate in European Committee B and so recommend such a debate on the two documents.

9.16 However, before that debate takes place we should like a comment from the Government on two points, related to the employment guidelines, document (b). We note that these guidelines, which Member States "shall take into account in their employment policies" under Article 148(2) TFEU, are adopted on the basis of a legally binding Council Decision, whereas the economic guidelines are adopted on the basis of a non-legally binding Council Recommendation. We would be grateful if the Minister could explain to us the thinking behind why the employment guidelines are adopted by a Decision and not a Recommendation, and whether this affects their legal status in the Member States. On this note we see that, under guideline 8, Member States are told that "[q]uality initial education and attractive vocational training must be complemented with effective incentives for lifelong learning, second-chance opportunities, ensuring every adult the chance to move one step up in their qualification, and by targeted migration and integration policies". If these are indeed guidelines, we think this recommendation should have been expressed in terms of "should" rather than "must".

9.17 Secondly, we also ask the Minister whether, in his view, the Decision adopting the employment guidelines falls within the definition of a "legislative act" under the TFEU. If it does the subsidiarity early warning mechanism in Protocol 2 would apply, meaning that the House could submit a "reasoned opinion" to the Commission if it thought that the proposal did not comply with the principle of subsidiarity. As the excerpt from the guidelines above shows, this is a policy field in which the Commission is making detailed recommendations; but it is also one where competence is shared with the Member States. So the principle of subsidiarity is particularly important. We think that the draft Decision is a legislative act because the Council adopts the Decision after the "participation" — in this case consultation— with the European Parliament: so the procedure comes within the generic definition of a "special legislative procedure" in Article 289(2) TFEU. However, doubt arises because the legal base does not state in terms that it is a special legislative procedure. In correspondence with us, the previous Government took the view that, where a legal base in the TFEU does not state that it is an ordinary or special legislative procedure, the act adopted is always non-legislative rather than legislative, irrespective of the participation of the European Parliament. Were that interpretation to be right, the House could not have invoked the subsidiarity early warning mechanism on this proposal.





41   (31373) 7110/10: see HC 5-xiv (2009-10), chapter 1 (17 March 2010) and Stg Co Debs, European Committee B, 22 March 2010, cols. 3-28. Back

42   See http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ec/113591.pdf.  Back

43   Ibid. Back

44   Flexicurity means flexible employment contracts combined with life-long learning, policies to encourage and support labour mobility, help to find secure jobs and social security systems which cushions people against unemployment caused by, for example, globalisation.  Back

45   See http://register.consilium.europa.eu/pdf/en/10/st11/st11646.en10.pdf.  Back

46   See http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ec/115346.pdf paragraph 1.3. Back


 
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