Commission proposes a governance framework for the Budgetary Instrument for Convergence and Competitiveness

This article is brought to you in association with the European Commission.

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Building on the vision set out in the Five Presidents’ Report of June 2015, the Commission’s Communication on the Deepening of the Economic and Monetary Union of 12 June 2019 and the guidance by the Euro Summit of 21 June 2019, the European Commission today proposes a governance framework for the Budgetary Instrument for Convergence and Competitiveness. The instrument will help euro area Member States and other participating Member States to enhance the resilience of their economies and of the euro area through support to targeted reforms and investment. The Eurogroup has already defined the main features of the Budgetary Instrument for Convergence and Competitiveness. Today, the Commission puts forward a proposal to organise the instrument’s governance: it sets out a framework for providing strategic orientations for reforms and investment to be supported by the new budgetary instrument in line with the overall economic policy coordination framework of the EU (the European Semester) and other EU policy instruments. Vice-President Valdis Dombrovskis, responsible for the Euro and Social Dialogue, also in charge of Financial Stability, Financial Services and Capital Markets Union, said: “Strengthening Europe’s Economic and Monetary Union has been a centrepiece of my work under this Commission. Today we are making sure that all elements are on the table for a successful and timely agreement on the Budgetary Instrument for Convergence and Competitiveness by the EU co-legislators. Supporting coherent reforms and investment packages will help increase competitiveness, strengthen resilience and enhance convergence, ultimately leading to a more prosperous and stronger Europe.” Günther H. Oettinger, Commissioner for Budget and Human Resources, said: “The EU budget will in future provide financial support to combined structural reforms and investments proposed by euro area Member States. This will enhance the effectiveness of EU spending and it will support convergence and competitiveness in the euro area. Our proposal today puts in place the governance for this new instrument. This represents a significant innovation for the euro area.” Under today’s proposal, the Council, following discussions in the Eurogroup, will each year set strategic orientations on reforms and investment priorities for the euro area as a whole. Later on, the Council will also adopt a Recommendation with country-specific guidance addressed to each euro area Member State on reforms and investment to be supported under the instrument. Both steps will be fully embedded in, and consistent with, the steps and guidance foreseen under the European Semester. The implementation of the instrument will be aligned with the timeline of the Semester. It will also be consistent with and provide synergies with other policies for investment, such as EU cohesion policy funds, the Connecting Europe Facility and InvestEU. Non-euro area Member States participating in the Exchange Rate Mechanism II will be able to participate in the budgetary instrument on a voluntary basis. For this, appropriate arrangements should be developed consistent with today’s proposal. In particular, the new framework will enable euro area Member States to: i. set strategic orientations for reforms and investment priorities in the euro area (as part of the euro area recommendation); ii. provide country-specific guidance in relation to reform and investment objectives, to be adopted in parallel with the country-specific recommendations; iii. receive information from the Commission on how euro area Member States have followed up on previous strategic orientations; The Budgetary Instrument for Convergence and Competitiveness will be created within the  proposal for the Reform Support Programme. The budgetary instrument is planned to be part of the Union’s budget and its size will be determined in the context of the negotiations on EU’s next long-term budget for 2021-2027. Background: The Commission’s proposal for a Reform Support Programme of May 2018 has been the basis for discussions on a Budgetary Instrument for Convergence and Competitiveness for the euro area. Anchored within the EU budget, this instrument will support euro area Member States in their targeted packages of reforms and investment. At the Euro Summit of 14 December 2018, the Heads of State or Government mandated the Eurogroup to work on the design, modalities of implementation and timing of a Budgetary Instrument for Convergence and Competitiveness for the euro area. The instrument is to be part of the Union budget and set up by amending the Commission legislative proposal for a Reform Support Programme if necessary. The Euro Summit also indicated that the instrument should be subject to criteria and strategic guidance from the euro area Member States. Based on the main features agreed in a term sheet by the Eurogroup and endorsed by the June Euro Summit, the objective of the Budgetary Instrument for Convergence and Competitiveness will be to support combined structural reforms and investments in euro area Member States with the aim to strengthen potential growth and to enhance the resilience and adjustment capacity of euro area economies. It will be complementary to existing EU funds. As set out in the term sheet, euro area Member States will submit, on a voluntary basis, duly substantiated and coherent proposals for reform and investment packages, which will be assessed by the Commission based on transparent criteria. Financial support would be made available in instalments subject to achieving agreed milestones. The euro area Member States meeting within the Council, the Eurogroup and the Euro Summit would provide strategic orientation and guidance as part of the Council recommendation on the economic policy of the euro area.