The Euro crisis brought home the message that the economies of member states have not converged and that they remain far from shock-proof. The stickiness of (weak) economic institutions is evident. To improve the implementation of the Stability and Growth Pact, and hence the resilience of the Euro area economies, (new) independent economic bodies were created in Member States and at the EU-level. These are:
The National Fiscal Councils, or Independent Fiscal Institutions (IFIs), to monitor the macroeconomic (fiscal) policies in the Member States;
The National Productivity Boards (NPBs) to monitor the microeconomic reforms relating to productivity and competitiveness; and
The European Fiscal Board (EFB) to monitor the Recommendations of the European Commission to Member States throughout the European Semester.
These independent bodies are considered essential additions to the European Semester by creating ownership for the objectives of the Stability and Growth Pact (hereinafter SGP). Rather than solely relying on the Commission, the independent monitoring at the national level of fiscal policies and competitiveness should result in a sharper understanding of local reform priorities and a reliable voice in the national discourse on fiscal and productivity policies. Given its long-standing reliance on comparable independent economic institutions, the Netherlands has been one of the major proponents of these new EMU bodies. The importance of the European Fiscal Board to ensure independent enforcement of the EU fiscal rules was even highlighted in the recent coalition agreement of the new Rutte Government. Furthermore, interviews conducted with stakeholders from a variety of Member States show that the expectations for these new governance bodies are high throughout the EU.
However, based on a review of trends in European governance, including independent national and European agency-type bodies and their European networks, we can conclude that the level of success of such arrangements varies considerably, and that in many cases their functional independence has remained inadequate. Moreover, there is a tendency that EU-agencies and their networks become dependent on the (increasingly political) European Commission.
In light of the recent state-of-play reports on IFIs, the publication of the first annual report of the EFB, and the March 2018 deadline for Member States on the implementation of NPBs, this article goes beyond mere stocktaking and instead examines whether the new EMU bodies, in their current design, are promising innovations in economic governance. On the basis of 25 stakeholder interviews conducted between February 2016 and December 2017, this article firstly identifies the political rational and institutional evolution of IFIs, the EFB and NPBs. The key findings are then summarised in the second section, and the article concludes with recommendations based on the identified shortcomings of the institutional set-up of the EMU agencies.
Although the Commission under Juncker seems to drift towards increasingly flexible and political decision-making when it comes to the implementation of the Stability and Growth Pact, the most recent reinforcement of the SGP in 2011 and 2013 through the Six-Pack and the Two-pack called for “enhanced national ownership” of economic reforms recommended under the European Semester through independent national bodies. The new EMU bodies created have two objectives: (1) to ensure national ownership of economic reforms; and (2) to allow for independent scrutiny at national level (IFIs and NPBs) and EU level (the EFB). Together these agencies should result in a stronger, more integrated multi-level economic governance system for the Euro area and thus help Member States to uphold the no-bail out clause of the Treaty.
On member state level, successive Dutch governments have been among the most vocal supporters of strengthening independent macro- and microeconomic supervision. The new Rutte government reiterated that independent national and European institutions should be a key priority to reinforce the checks and balances at the national and EU level. Similarly, many policy discussions, most prominently headed by Daniel Gros and Cinzia Alcidi, highlight the importance of monitoring Country Specific Recommendations (CSRs) of the European Semester through ‘operationally independent’ national bodies. They show that the implementation of CSRs has been low and continuously decreasing since the end of the Euro crisis, due, in part, to a lack of national ownership of the necessary reforms. External peer pressure does not appear to yield sufficient tangible results in ‘non-crisis’ times. As argued by, among others, Charles Wyplosz, greater reliance on national expert decision-making is therefore essential because complex, centralised rules cannot produce fiscal discipline and that, instead, “the solution must come from within”.
The IFIs were set up as “independent bodies or bodies endowed with functional autonomy vis-à-vis the fiscal authorities of the Member States” as part of the wider initiative of “strengthening national ownership” within the European Semester. The Directive stresses the need to counteract political abuse of (pro-cyclical) fiscal policy and to improve overall macroeconomic stability within the Union. The IFIs’ tasks are threefold: a) endorsing the macroeconomic forecast produced by the authorities; b) monitoring compliance with numerical fiscal rules; and c) providing public assessments of fiscal rules relating to the activation of the correction mechanism.
As can be expected with agency-type arrangements in the EU, IFIs do not stand on their own, but are interconnected in two networks at EU-level: the Commission-run biannual EUNIFI meeting established by DG ECFIN in November 2013, and the self-organised and independent Network of EUIFIs established in September 2015. These networks, and particularly the former, were often referred to in interviews as light “platforms”, suggesting there is some reluctance to engage in formal network arrangements. The latter platform represents the IFIs vis-à-vis the Commission and produces position papers on EU fiscal initiatives and minimum standards for IFIs. It currently counts 25 IFIs from 23 Member States as its members.
The EFB was supposed to be the European equivalent of the IFIs by offering the independent checks and balances to the way in which the European Commission monitors national budgets and ought to have worked on the basis of the same ‘comply‑or-explain’ principle that national IFIs apply to the national government. Initially, as defined in the Five-Presidents Report, the board – among other tasks – was supposed to (1) coordinate the network of national fiscal councils while abiding to the same standard of independence as its national counterparts; and (2) evaluate and advise on the Commission’s implementation of the SGP.
However, the final EC decision of October 2015 substantially differed from the initial plans. As the interviews underlined, the IFIs did not accept a European ‘coordinating’ role and the member states were wary of a European monitoring of a fiscal stance (as this hints towards the subordination of the national control of the SGP to a broader European fiscal stance). The tasks of the EFB are now limited to (1) evaluating how the Commission monitors the member states; (2) giving advice to the Commission on the prospective fiscal stance for the entire euro area (and no longer on the national level as well); (3) provide ad-hoc advice to the Commission; and (4) cooperate with national IFIs. However, as the interviews have shown, the latter task has been of the lowest priority to the Board thus far and little progress is visible in this regard. As a result, the EFB is closely connected to the European Commission and largely disconnected from the IFIs.
The most recent addition to the EU’s economic governance structure are the National Productivity Boards. NPBs were initially described as “structurally independent” bodies grounded in national legislature with the “capacity to communicate publicly in a timely manner” about developments as far as the productivity and competitiveness of member states is concerned. As set out in the Five-Presidents Report, member states were to have “national competitiveness authorities” to assess wage developments from a comparative perspective, i.e. across member states and main trading partners. However, due to political sensitivities, the Council objected to wage comparisons and further watered down the final Recommendation by dropping the reference to ‘adequate resources’ as well as the recommendation to ground these bodies in national legislature. Furthermore, whereas IFIs are based on a directive and regulations and hence are obligatory, the NPBs were set up through a non-binding Council Recommendation.
Three main hurdles can be distinguished that inhibit the development of the new independent EMU bodies. The most evident impediments relate to practical constraints but task ambiguities and lack of attention for creating functioning EU networks are equally disruptive.
Practical constraints. Lack of resources, major differences between IFIs in terms of political-administrative traditions, varying working methods and access to information have attracted considerable attention. National institutional idiosyncrasies make it hard for the smaller IFIs to play an independent role and to be a nationally visible player. Practical constraints are even more pertinent when it comes to the NPBs: with three months left, only 7 NPBs have been created. As regards the EFB, it also suffers from lack of human resources (board members are expected to work 10 days a year) and independent staff. Generally, the bodies are under-resourced and too dependent on parent departments to offer credible checks and balances. As regards independence, the European Commission does not set the right example by limiting the time of EFB board members and by supporting it through the Commission’s Secretariat-General.
Task ambiguities. While the first task of IFIs regarding the endorsement of the national macroeconomic forecast is fairly straightforward, a role duplication emerges in terms of the second task of national IFIs: both the national bodies and the Commission supervise member states’ implementation of the fiscal rules and their Recommendations have been shown to clash in the past.  At EU level, the EFB assesses the Commission’s monitoring of the member states and discusses the overall fiscal stance of the Euro area. This is done without input from the IFIs who also monitor the member states. On the other hand, the Commission continues monitoring the member states just as before even though new national bodies have emerged. Hence, the relevance of setting up a subsidiarity-based monitoring system is ignored.
As regards the NPBs, it is still unclear to stakeholders what the tasks of these boards would be. As explained by an NPB official, a thorough assessment of productivity developments in member states demands analyses of a wide set of policy areas ranging from education to social policy. The fact that the reference to ‘adequate resources’ was removed by the Council before adopting the Commission’s Recommendation makes it unlikely that the NPBs will possess sufficient staff and budgets to cover this wide array of policy areas. Generally speaking, a subsidiarity-based system of monitoring competitiveness in which a major role is reserved for national bodies with national ownership is not on the agenda.
Network deficiencies. Most stakeholders involved in the new EMU bodies seem to have little idea of how to design effective governance networks. In fact, we found little awareness among those involved of why networks are important. Little thought has been put in designing an effective EU network in which the national and EU bodies cooperate and engage in mutual inspections (also with a view to foster mutual learning and creating a sense of professional values). The IFI and NPB networks, at this stage, appear underdeveloped, and there is no inspection mechanism to guarantee the proper functioning of the national bodies.
In terms of the NPBs, a similar trend is visible as the Council rejected the Commission’s plan to make the Commission the interlocutor for NPBs, instead calling for “regular discussions with the Economic Policy Committee” within the Council. Given the experience of IFIs, it seems unlikely that the NPBs can expect sufficient support from the Council to set up a strong European node to support their work. On the other hand, national actors seem to purposely avoid coordination with EU institutions because they want to safeguard their national ownership and independence. The Commission is not putting much effort in creating effective multi-level structures either as it does not want to be perceived as interfering in the national institutional setup (but it may also have reservations given its existing monitoring role).
Lastly, there is little interest among MEPs as regards IFIs and the European Parliament is side-lined when it comes to the EFB and the NPBs, given that the ordinary legislative procedure has not been used in their set-up. This ultimately creates the paradox that, while the new bodies are intended to create ownership in a multi-level system, in fact no-one wants take responsibility for the development towards such a system of monitoring bodies.
The question of why IFIs and the EFB are important has not been translated into a framework of how they would operate as a multi-level system to reinforce the SGP. To overcome the practical constraints and task ambiguities, it would be appropriate to shift, as was suggested among others by Alcidi and Gros, from “a centralised system of coordination under the auspices of the Commission” towards “a decentralised system of monitoring and surveillance”.  Given the aim of creating ownership, it would be sensible if the IFIs would take over the monitoring role of the Commission and that the EFB would assume the independent quality control of the IFIs within (and with support of) the IFI network. This network, headed by the EFB, could subsequently assume the role of independent monitor of the fiscal stance for the Eurozone.
This network arrangement would ensure tasks are clear and follow the normal pattern of first order control and second order control of EU legislation: national bodies control member state’s implementation, while the Commission, supported by the EFB, controls the national systems. This is the case in successful EU-networks (the ECB network was referred to in interviews as a model). The NPBs would benefit from a similar system, but the non-committal implementation and Council alterations of the initial recommendation underline reserved positions all around. As the discussion of the findings above indicates, the new national EMU bodies cannot contribute to the required ownership of reforms if they are not embedded within a subsidiarity-based multi-level system with clear task allocations at each level. At this stage, it is therefore not possible to conclude that IFIs, NPBs or the EFB are promising innovations in terms of European economic governance.
About the authors
Adriaan Schout is Senior Research Fellow and Coordinator Europe at the Clingendael Institute. He combines research and consultancy on European governance questions for national and European institutions. He has worked on projects addressing issues of the EU presidency, EU integration and Improving EU regulation, amongst others.
Christian Schwieter is a research assistant at the Europe and the EU cluster of the Clingendael Institute, where he focuses on European fiscal and economic governance, as well as German politics.