Table of Contents
5 Issues and Conclusions
7 The Foundations of European Economic Policy
7 The European economic constitution:
The leitmotif of the social market economy
8 The limits of European primary law
10 European economic process policy
13 European Economic Policy-making
13 Regulation of the internal market
16 Competition law and industrial policy
17 Strategic planning and economic policy coordination
21 Incentives through funding
23 The European Economy, the Green Deal,
and the Pandemic
23 Internal market regulation and the
scope for state aid and competition law
25 The new focus of the European Semester
26 Financial incentives to implement the Green Deal
28 The future role of the Commission
29 The EU on the Way to a Unitarised Economic Policy
31 Unitarisation trends in European economic policy
31 Abbreviations
Dr Peter Becker is Senior Associate in the EU / Europe Division
at SWP.
Issues and Conclusions
A European Economic Policy in the
Making: Success with Modest Means
One of the roots of the European Union (EU) and a
major driving force behind the process of European
integration was, and still is, the integration of national
economies into a common market with a common
currency. European unification has always been an
economic project. This makes it all the more surpris-
ing that the EU is not actually allowed to pursue an
independent economic policy. The European treaties
do not provide for this. Instead, the member states
can only coordinate their respective economic pol-
icies in the common interest. Nevertheless, even the
EU can fall back on an economic constitution and
order, and it undoubtedly has its own instruments for
implementing its economic goals.
In view of this starting position, two sets of ques-
tions need to be answered:
1. What are the guiding principles and objectives
of European economic policy? What are the EU’s
current competences and possibilities, and how
does the Union, and in particular the European
Commission, use its economic policy instruments?
2 What will European economic policy look like
in the new decade? What new economic goals are
moving into the EU’s focus, and how could this
policy evolve in the long term?
An analysis of the policy field, tasks, and options of
European economic policy should start with a descrip-
tion of the competences transferred to the EU by the
European treaties and the existing policy instruments.
It is only against this background that it becomes
apparent how far actual European economic policy
has distanced itself over the past decade from the legal
foundation of the policy, which is still formally
dominated by the EU member states.
The EU has limited economic policy options, but it
has used its instruments effectively and successfully
expanded its room for manoeuvre over the last decade.
This is particularly true of the European Commission.
Although still formally dominated by the EU member
states, it has made skilful use of its room for manoeu-
vre to initiate a steady process of Europeanisation and
supranationalisation of economic policy. This is an
approach that will continue with the European Green
Deal and as part of the joint response to the socio-eco-
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5
Issues and Conclusions
nomic consequences of the Covid-19 pandemic. If this
trend continues in the long term, further unitarisa-
tion of European economic policy can be expected.
However, whether it will be possible to switch to a
sustainable and climate-protecting form of economic
activity throughout the EU under the conditions of
digitisation, as envisaged, depends on whether the
structural and systemic limitations and obstacles to
an active, coherent, and efficient European economic
policy can be removed. To this end, the EU should
be equipped with additional economic policy instru-
ments, such as an extended competence for fiscal
policy issues, so that the Community can provide
effective economic policy incentives through the price
mechanism. However, this can only be achieved by
amending the European treaties, that is, gaining the
consensus of all member states – which is currently
not in sight. Transferring additional powers and
adapting the European treaties is therefore a rather
long-term objective.
The central instrument of European economic
policy is the European Semester: a framework for
policy-making and steering with fixed deadlines for
evaluation, recommendations, and implementation;
it brings together and takes into account all economic,
employment, social, and, in the future, sustainability
policy goals and strategies of the EU. The reorienta-
tion of the European Semester towards global chal-
lenges should not, however, lead to an overloading of
this central steering instrument. The economic policy
objectives should remain at the centre, that is, moni-
toring macroeconomic and fiscal policy in the mem-
ber states and implementing economic policy reforms
to enhance competitiveness and create jobs. Under the
conditions laid down in the EU treaties, the Euro-
pean Semester is the only instrument that enables
effective economic policy coordination of the member
states: by focussing on common objectives and inter-
ests, through financial incentives from European
funds and – under certain conditions – through
sanctions in the event of non-compliance with the
jointly agreed economic policy. Overloading the Euro-
pean Semester with additional objectives and topics
should therefore be avoided, as this would threaten
to undermine the political objectives and make them
less clear. This could possibly take away the relevance
and urgency of the Commission’s recommendations
for economic policy reform.
The European single market must remain at the
heart of European economic policy. The European
social market economy requires open markets and
free competition. Considerations of politicisation,
particularly of European competition and state aid
control, or protectionist restrictions on access are
therefore not appropriate. The reactions of member
states at the beginning of the pandemic have shown
how quickly and far-reaching protectionist measures
can hinder and slow down the exchange of goods,
services, and people in the European internal market.
The very essence of European integration would
be put at stake. The economic power of the internal
market and the EU’s regulatory strength will only
be effective and convincing to global competitors if
European economic policy respects the foundations
and framework of its own economic constitution.
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6
The Foundations of European
Economic Policy
Economics and politics are closely interwoven; the
decisions made in political institutions influence
economic decisions; conversely, the economic situa-
tion and its development affect political preferences
and The task of economic policy in a
heterogeneous environment with differentiated
interests is to find an appropriate balance between
the individual interests of economic actors, the over-
all welfare, and other political and social objectives.
In the EU, general economic policy ranges from em-
ployment and social policy to consumer protection,
infrastructure, tourism, and industrial
Consequently, the fields of action of economic
policy are both the development of structures of the
economic order and questions of steering and regu-
lating economic processes and decisions. For this
reason, a distinction is usually made between the
more structural, long-term, and normatively-oriented
policy for the creation and shaping of an economic
order and economic constitution – which essentially
maps and concretises the decision of a community
on its economic system – and the more short- to
medium-term economic process policy, which is primarily
determined by the day-to-day political decisions of
the An economic constitution creates
the normative foundations of the respective economic
system of a state and provides the economic constitu-
1 Bruno S. Frey, “Eine Theorie demokratischer Wirtschafts-
politik”, Kyklos 31, no. 2 (1978): 208–34; idem, Theorie demo-
kratischer Wirtschaftspolitik (Munich, 1981). Max Weber already
wrote: “Every rational ‘policy’ uses economic orientation
in its means and every policy can serve economic goals.” Max
Weber, Wirtschaft und Gesellschaft. Grundriss der verstehenden
Soziologie, ed. Johannes Winckelmann. Study edition (Tübin-
gen, 1980), 31f. (§1).
2 These segments are subsumed under the umbrella term of
“economic policy”. However, they cannot be discussed and
analysed here in a systematic and differentiated manner.
3 This distinction between “form and process” in economic
policy goes back in particular to Walter Eucken.
tional foundations, which define the framework of
the respective economic system and the rights and
obligations of public and private economic actors. In
essence, the economic constitution is the economic
system decision of a community and its constitutional
concretisation.
Under the special conditions of the EU’s multi-level
political system, the scope for action for both ele-
ments of economic policy is limited, even though the
need for a coordinated and effective common Euro-
pean economic policy has become clear to all actors,
at the latest with the creation of the single European
market in the early 1990s and the single currency.
The respective understanding of form, content, task,
and objective of European economic policy still dif-
fers among the member states. Despite all the pleas
for a deepened “European economic union for con-
vergence, prosperity and social cohesion”,4 the Euro-
pean Commission concluded as late as 2017 that
European economic policy will lag behind national
economic policies, particularly in the euro
The European economic constitution: The
leitmotif of the social market economy
At a very early stage, Ernst-Joachim Mestmäcker con-
sidered the application of the term “economic consti-
tution” to the process of European integration to
be justified since the Treaty of Rome in Since
4 European Commission, Completing European Economic and
Monetary Union (Five Presidents’ report). Presented by: Jean-
Claude Juncker in close cooperation with Donald Tusk,
Jeroen Dijsselbloem, Mario Draghi and Martin Schulz (Brus-
sels, 22 June 2015), 7–11.
5 Idem, Reflection Paper on Deepening Economic and Monetary
Union, COM(2017) 291 (Brussels, 31 May 2017).
6 Ernst-Joachim Mestmäcker, “Auf dem Wege zu einer
Ordnungspolitik für Europa”, in idem, ed., Eine Ordnungs-
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October 2020
then, the European economic constitution has been
based on free competition between economic actors
in a common market for the exchange and trade of
goods, services, capital, and persons. The creation and
safeguarding of open markets in which undistorted
competition prevails were – and are – undoubtedly
constituent elements of a market economy. However,
this model was initially lacking in the European trea-
ties and therefore repeatedly questioned with refer-
ence to interventions in market mechanisms in agri-
culture and coal and steel. The respective ownership
systems in the member states initially left the Euro-
pean treaties untouched and open. It was only with
the Maastricht Treaty in 1992 that the member states
and the Community committed themselves to the
principle of “an open market economy with free com-
petition”,7 a commitment that was finally supple-
mented and reworded by the Treaty of Lisbon in 2007.
Article 3 of the Treaty on European Union now refers
to a “highly competitive social market economy”
that should also aim at full employment and social
The Treaty of Lisbon also incorporated
the Charter of Fundamental Rights of the European
Union into European primary law. Its articles –
entrepreneurial freedom, the right to property, and
collective fundamental rights such as the right to
access to a job centre, protection against unjustified
dismissal, and the right to social security and assis-
tance – became part of the European economic con-
stitution and the model for a social market economy.
politik für Europa. Festschrift für Hans von der Groeben zu seinem
80. Geburtstag (Baden-Baden, 1987), 9–49 (17).
7 European Communities, “Treaty on European Union
Together with the Provisions Amending the Treaty Establish-
ing the European Economic Community with a View to Estab-
lishing the European Community”, Official Journal of the Euro-
pean Communities, no. C 224/01 (31 August 1992) Article 3a.
8 See Florian Rödl, “Europäisches Verfassungsziel ‘soziale
Marktwirtschaft’ – kritische Anmerkungen zu einem popu-
lären Modell”, Integration 28, no. 2 (2005): 150–61; Rutger
Claassen et al., “Four Models of Protecting Citizenship and
Social Rights in Europe: Conclusions to the Special Issue
‘Rethinking the European Social Market Economy’”, Journal
of Common Market Studies 57, no. 1 (2019): 159–74; Christian
Joerges and Florian Rödl, “Social Market Economy” as Europe’s
Social Model? EUI Working Paper Law no. 2004/8 (Florence:
European University Institute [EUI], 2004).
Many fundamental economic policy
decisions and structures in Europe can
be traced back to regulatory policy
ideas of the Federal Republic of
Germany.
The shaping of the European economic consti-
tution was influenced by the ideas9 of the Federal
Republic of Germany, especially those of Walter
Eucken and the Freiburg School. To this day, ordo-
liberal principles and structural decisions can be seen
in day-to-day European economic policy decisions, for
example in the measures that the EU has been using
in response to the deep crisis in the euro zone since
With the process of European integration and the
penetration of national economic systems by European
legislation, the scope for differences in national eco-
nomic constitutions has become noticeably
European fundamental freedoms in the internal mar-
ket, supranational competition, and state aid law and
Community regulations set the framework for national
economic policies and economic
The limits of European primary law
Nevertheless, European economic policy is still domi-
nated and determined by EU member states. Like the
9 The main elements include a property system that guar-
antees private property, a monetary policy that ensures the
stability of the currency, and a competition policy that allows
the free play of market forces. See also Jens van Scherpen-
berg, “Ordnungspolitischer Konflikt im Binnenmarkt”, in
Europäische Integration, ed. Markus Jachtenfuchs and Beate
Kohler-Koch (Opladen, 1996), 345–72.
10 See Mark Schieritz, “Deutscher Sonderweg? Ökono-
mische Grundannahmen der Politik in Deutschland”, in
Die Zukunft der Eurozone. Wie wir den Euro retten und Europa
zusammenhalten, ed. Alexander Schellinger and Philipp Stein-
berg (Bielefeld, 2016), 75–87; Peter Nedergaard, “The Ordo-
liberalisation of the European Union?”, Journal of European
Integration 42, no. 2 (2020): 213–30.
11 See Matthias Ruffert, “Zur Leistungsfähigkeit der Wirt-
schaftsverfassung”, Archiv des öffentlichen Rechts 134, no. 2
(2009) 2, 197–239; Stefan Griller, “Wirtschaftsverfassung
und Binnenmarkt”, in Economic Constitution and Internal Mar-
ket. Studies in Honour of Heinz-Peter Rill’s 70th birthday, ed. idem
et al. (Vienna, 2010), 1–47.
12 See David Jungbluth, “Transforming the Basic Law Eco-
nomic Constitution through European Union Law”, European
Law 45, no. 4 (2010): 471–89.
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A European Economic Policy in the Making
October 2020
founding European treaties, the Treaty of Lisbon –
in Article 119 of the Treaty on the Functioning of
the European Union (TFEU) – speaks only of “close
coordination of member states’ economic policies”,
based on “the internal market and the definition of
common objectives”. The member states are to regard
their economic policies as “a matter of common con-
cern” (Article 121 TFEU) and direct them towards
common objectives.
The European treaties do not provide
for supranational economic policy.
European primary law clearly provides no legal
base for supranational economic policy-making. The
member states have so far always rejected any trans-
fer of economic, employment, or social policy com-
petences to the EU that would go beyond the present
level and allow the harmonisation or centralisation
of policies. The obvious contradiction between the
retention of national sovereignty and the need for
Community action on these very policies is to be
resolved by the softer method of policy coordination.
Consequently, the responsibilities for economic
policy-making are those that have either been trans-
ferred only in part to the EU or remain entirely with-
in the competence of the member states. In any case,
equipping the EU with the appropriate political and
legislative instruments to implement an efficient and
coherent economic policy has its limits in the division
of competences between the EU and member states.
Thus, the EU is denied a central instrument of national
economic policy: the levying of taxes or the modifica-
tion of existing tax rates. As a result, an important
channel for influencing the price mechanism in the
European internal market is The few tax policy
competences of the EU in the field of indirect taxa-
tion are primarily intended to ensure equality of com-
petition and compliance with the prohibition of
discrimination in the European internal market. The
consensus-based harmonisation of indirect taxation is
only possible “to the extent that such harmonisation
is necessary to ensure the establishment and func-
tioning of the internal market and to avoid distor-
tions of competition” (Article 113 TFEU). Although
13 Articles 110 to 113 TFEU relate only to indirect taxes;
Article 114(2) TFEU allows harmonisation of legislation on
turnover taxes, excise duties and other indirect taxes only
under a special legislative procedure, . by unanimity in
the Council.
the harmonisation of direct taxes, in particular cor-
porate tax, and the establishment of a uniform basis
of assessment have also been discussed for several
decades, the Commission has not yet reached a con-
sensus on the need to harmonise indirect taxes. How-
ever, these initiatives are also limited to the objective
of ensuring the equality of competition in the internal
market. A genuine economic governance effect with a
Community tax policy has so far played only a minor
role in these debates.
Internal market, competition policy, and
monetary union
From the outset, European integration was intended
to create a common market for goods, labour, capital,
and services with a level playing field and the establish-
ment of a customs union. Both were to be achieved
through a policy of legislative approximation and
standardisation. Harmonisation covers framework
conditions, production, and product specifications,
but also the rights and their protection of market
participants, which are addressed, for example, by
consumer and labour protection legislation. Because
of the large number of national laws to be harmo-
nised in addition to the technical and administrative
obstacles, the principle of harmonisation was supple-
mented by the principle of mutual recognition at the
end of the 1980s in the course of the European Com-
mission’s internal market programme and the Single
European Act. The regulation of the internal market
and its four market freedoms by means of European
legislation is still the central economic policy instru-
ment of the EU today. It is also intended to achieve
economic convergence.
The common economic area can only function in
the long term if restrictions of competition by com-
panies or public authorities are As a
supranational institution committed to the European
common good, the European Commission acts as the
European competition authority – irrespective of the
national or regional interests of the member states. It
is responsible for the competition law categories laid
down in European primary law, namely the prohibi-
tion of cartels; other restrictive measures or agree-
ments; mergers and abuse of a dominant market posi-
tion; as well as for monitoring the basic ban on state
14 Anna Gerbrandy, “Rethinking Competition Law within
the European Economic Constitution”, Journal of Common Mar-
ket Studies 57, no. 1 (2019): 127–42.
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October 2020
aid and monitoring of public tenders. However, the
strict European competition and state aid policy is
in tension with other forms of European economic
policy. This applies in particular to European support
programmes for the agricultural sector and – with
the help of the Structural Funds – for regions, to
European industrial policy, but also to the special
handling of services of general interest such as energy
supply, telecommunications, and local public trans-
port.
The Maastricht Treaty set a constitutional objective
of economic integration that went beyond the single
market: the creation of the European Economic and
Monetary Union. A supranational monetary and
exchange rate policy in the euro zone was intended
to complement and enhance the EU’s more narrowly
focussed economic policy, which was geared towards
completing the single market. Even in the run-up to
the Maastricht negotiations, there had been intense
and controversial debate about whether a common
economic policy was indispensable for the stability
and functioning of monetary union. Finally, it was
agreed that the necessary economic convergence in
the euro area would be achieved through a deeper
economic policy coordination of national policies.
The transfer of competences and responsibilities for
monetary policy to supranational bodies was delib-
erately not reflected in economic policy. In contrast to
the scope and objectives of the single market-related
European economic policy, supranational monetary
and exchange rate policy is primarily geared to macro-
economic and macro-financial aspects: The member
states must keep their national public budgets per-
manently stable and are obliged to avoid excessive
public deficits.
The two elements of European Economic and
Monetary Union – economic policy on the one
hand, and monetary and exchange rate policy on the
other – are therefore different. There are consider-
able differences both in terms of their binding force
under primary law and in terms of the political and
legal instruments available to the EU and its insti-
tutions. This discrepancy has consequences: for the
scope of member states’ fiscal policy and the EU’s
ability to exert
15 In view of the special monetary and fiscal policy starting
points and framework conditions for member states in the
euro zone, the extensive and far-reaching political and scien-
tific debate on the need for reform and options in the euro
zone – ranging from European bonds or a state insolvency
European economic process policy
Although the EU’s legislative powers in the field of
economic policy are clearly limited by primary law,
the EU and its institutions have developed a compre-
hensive and far-reaching economic process policy –
with an only modest set of instruments, which is also
limited in its
Instruments
The policy is not entirely outside the EU’s compe-
tence. The role and influence of the European institu-
tions in supporting instruments such as the Broad
Economic Policy Guidelines (Article 121 TFEU) are laid
down in the treaty; but the European Commission in
particular can develop its own ideas on the topics and
objectives of coordination, and thus set its own prior-
ities as an agenda In principle, the EU has the
following four instruments at its disposal for shaping
a European economic process policy.
Legislation and regulation of the
internal market
The EU can regulate the internal market with Euro-
pean legislation, albeit not fully and completely
autonomously. Legislation harmonising national
regulations and European competition and state aid
law are of particular importance in this respect. In
addition, the Union has powers for certain sectors,
such as agricultural and fisheries policy, energy
policy, transport policy with trans-European net-
works, and related policy areas such as consumer
protection and environmental policy.
The EU’s regulatory activity can open up new
markets for the internal market and European com-
petition or expand existing ones. The Services Direc-
tive for the services sector, the Capital Market Union
for the financial markets, initiatives in traffic and
transport policy, the energy sector and public resp.
in the euro zone to ways and forms of a European fiscal
union – is not intended to be deepened further here.
16 An adaptation of the European economic constitution
would require difficult negotiations to change the European
treaties, which are not currently on the agenda. Therefore,
the focus of the analysis below is on the EU’s economic pro-
cess policy; for the sake of simplicity, the terms “economic
process”, “economic policy-making”, and “economic policy”
are used synonymously.
17 See Sebastiaan Princen, Agenda-setting in the European
Union (Basingstoke, 2009).
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universal services are well-known examples. The EU
is now also aiming for a single European market for
data, given the growing importance of
The opening of markets to free competition, that is,
deregulation, often entails both the possibility and
necessity of re-regulation. This means more than mere
legislation. Specifically, it involves setting limits or
standards, monitoring them and, where appropriate,
imposing sanctions in the event of non-compliance,
and creating or establishing appropriate procedures
and institutions – in other words, clearly the exercis-
ing of an economic process policy.
Enforcement of European competition policy As
the European Commission is the European com-
petition authority, it can intervene in the market by
specifying the competition and state aid requirements
of European contract law, regulating implementation,
and monitoring compliance. The Directorate-General
for Competition is responsible for the preparation
and processing of specific competition-related cases
and for the investigation, evaluation, and preparation
of decisions such as fines, merger prohibitions, and
company splits.
The Commission cooperates closely with the
national competition authorities in a European Com-
petition Network and usually intervenes only when a
potential infringement of European competition law
affects several member states or companies in several
member However, the Commission is em-
powered to assume jurisdiction in an individual case
and submit opinions to the national courts on its own
initiative if it has concerns about the interpretation
of national authorities. Its interpretation of how Euro-
pean competition and state aid law should be applied
and the case law of the European Court of Justice
(ECJ) can guide decisions at the national level. It also
provides guidance on areas of application of Euro-
pean competition law in order to ensure consistency
in the application of the law and the conformity of
18 European Commission, Shaping Europe’s Digital Future,
COM(2020) 67 final (Brussels, 19 February 2020).
19 See Council of the European Union, “Regulation No 1/
2003 of 16 December 2002 on the Implementation of the
Rules on Competition Laid Down in Articles 81 and 82 of the
Treaty”, Official Journal of the European Communities, no. L 1/1
(4 January 2003): 1–25 (Articles 81 f. of the EC Treaty cor-
respond in TFEU to Articles 101 f.).
decisions on competition law with judgments of the
Community objectives and policy
coordination
In areas where there is no legally binding regulation,
the EU nevertheless has the possibility of influencing
the framework, priorities, and measures of member
states’ economic policies. By proposing common
objectives at the European level that are accepted and
implemented by the member states, the EU can set
politically binding priorities and guidelines. However,
implementation and, in some areas, the choice of
appropriate measures will remain the responsibility of
the member states. Economic policy coordination
involves competition between countries to find the
best way to achieve the commonly agreed objectives,
promoting mutual learning between member states,
and comparing national policies and models. The EU,
usually the European Commission, may also be man-
dated by the member states to monitor and, if neces-
sary, sanction compliance with – and implementa-
tion of – commonly agreed objectives and targets. It
can thus at least indirectly influence economic devel-
opments in the EU and the member states and exer-
cise some economic policy control.
Financial incentives and conditionalities The
EU has a small budget compared to member
states’ budgets, and its autonomy in using these
financial resources is limited. However, it can provide
effective start-up financing through its own funds and
investment or support programmes, and it can com-
bine this with conditions for implementing policies
and objectives.
The Common Agricultural Policy (CAP) is the oldest,
best-known, and most criticised EU support policy for
a specific sector of the European internal
For the so-called first pillar of the CAP – direct pay-
ments to farmers and market support measures – a
total of €278 billion (at 2011 prices) has been ear-
20 See, ., European Commission, “Guidelines on the
Applicability of Article 101 of the Treaty on the Functioning
of the European Union to Horizontal Cooperation Agree-
ments”, Official Journal of the European Union, no. C11/1 (14
January 2011): 1–72.
21 The objectives and tasks of this policy, which are set out
in Article 39 TFEU, include increasing productivity and per
capita income in agriculture, stabilising markets for agricul-
tural products and, finally, ensuring a cost-effective supply
of agricultural products.
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A European Economic Policy in the Making
October 2020
marked for the current financial period 2014 to 2020.
The second major area of expenditure from the EU
budget comprises the European Cohesion Funds and
Structural Funds; in the current funding period, a
total of €325 billion is available to boost growth and
If the necessary national co-financing
is added, these funds provide the EU with a powerful
economic policy instrument worth around €650 bil-
lion.
In addition, the EU has the possibility to co-deter-
mine member state and regional funding priorities
through the specific legislation and its Cohesion
Policy steering and planning documents. A “paradigm
shift” has taken place: away from transfers and their
distribution, and towards growth and results-oriented
There is no doubt that European Co-
hesion Policy and the Structural Funds have now
become the main financial instrument of European
economic policy. The EU offers similar incentives to
other sectors of the economy, either directly through
the creation of favourable framework conditions, or
through accompanying member state policies. There
are, for example, programmes to build up and expand
infrastructure; promote individual industrial sectors,
especially small and medium-sized enterprises (SMEs);
support innovation and research; in addition to edu-
cation policy support programmes.
With the help of its own institutions, such as the
European Investment Bank (EIB), the Union can also
supplement its financial incentive policy with loans
and guarantees.
22 European Commission, Strategic Report 2019 on the
Implementation of the European Structural and Investment Funds,
COM(2019) 627 final (Brussels, 17 December 2019).
23 Walter Deffaa, “The New Generation of Structural and
Investment Funds – More than Financial Transfers?” Inter-
economics 51, no. 3 (2016): 155–63.
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A European Economic Policy in the Making
October 2020
European Economic Policy-
making
The EU’s economic policy instruments therefore con-
sist primarily of policy coordination and coordination
of the economic policies of the member states. The
European Commission can only fulfil this task, which
is laid down in the European treaties, after first en-
suring that there is a common understanding of the
economic challenges that the member states want, or
should, tackle together and which political objectives
are derived from this assessment.
With the help of strategies and guidelines drawn
up and agreed upon for this purpose, the EU, and
in particular the European Commission, is perfectly
capable of influencing the economic policies of the
member states. In agreement with the member states,
it can define the objectives of – and priorities for –
their economic policies, set or change the framework
conditions, and monitor compliance with the prin-
ciples laid down in the European economic constitu-
tion: the safeguarding of free and unrestricted com-
petition in the common market.
Regulation of the internal market
The internal market is at the heart of economic inte-
gration, and thus also of European economic
Around 520 million people currently live in the
enlarged internal market. As this integration project
is never complete, the internal market must be con-
tinuously adapted and developed to meet the chal-
lenges of a changing environment and new circum-
24 Beyond the 27 member states, Liechtenstein, Norway,
and Iceland are additional three de facto members of the
internal market, while Switzerland is closely linked and
largely integrated through a large number of bilateral agree-
ments. Future relations with the United Kingdom and the
connection to the internal market are still open.
Its economic and political importance is
immense; it is “one of the greatest achievements of
the European project [...] it has been instrumental in
increasing the prosperity and wealth of the citizens
of the European Union”.26
With the economic power of the
internal market, the EU is able to
externalise its own standards,
norms, and rules.
This economic power of the internal market en-
ables the EU to externalise its own standards, norms,
and rules and enforce them With its com-
petition policy in particular, the EU can achieve inter-
national regulation that extends beyond the Com-
munity on the basis of European competition law28
and – using the “Brussels effect” smartly – triggers
a real race to the top in the competition for standards in
consumer and labour protection as well as in social,
environmental, and employment policy. This global
expansion of high European standards and require-
25 Therefore the frequently used phrase “completion of
the internal market” is wrong and misleading.
26 European Commission, The Single Market in a Changing
World. A Unique Asset in Need of Renewed Political Commitment,
COM (2018) 772 final (Brussels, 22 November 2018), 1.
27 Sandra Lavenex and Frank Schimmelfennig, “EU Rules
beyond EU Borders: Theorizing External Governance in Euro-
pean Politics”, Journal of European Public Policy 16, no. 6 (2009):
791–812; Anu Bradford, “Exporting Standards: The Exter-
nalization of the EU’s Regulatory Power via Markets”, Inter-
national Review of Law and Economics 42 (2015), https://papers.
idem, “The
Brussels Effect”, Northwestern University Law Review 107, no. 1
(2012): 1–67 (3).
28 Dominique Sinopoli and Kai Peter Purnhagen, “Reversed
Harmonization or Horizontalization of EU Standards? Does
WTO Law Facilitate or Constrain the Brussels Effect?” Wis-
consin International Law Journal 34, no. 1 (2016): 92–119.
SWP Berlin
A European Economic Policy in the Making
October 2020
ments could be successful primarily if the EU reacts
quickly, distinctly, and in a strictly regulatory manner
to attempts by global competitors – but also Euro-
pean suppliers – undermining EU rules.
Digital policy is a good example of the new regula-
tory tasks. When innovation creates new markets, the
EU is called upon to draft directives and regulations
for the internal market and access to it. The regula-
tion of the data markets in particular shows the scope
for regulation, which goes hand in hand with the EU’s
immense market power. The General Data Protection
Regulation is certainly the best-known example of
“Europe’s regulatory model” and acts as a “strong
reference point for many outside Europe”.29 With the
new digital and data strategy, the Commission also
aims to reinforce “Europe’s ability to define its own
rules and values in the digital age”.30
The EU also has a similar level of market and regu-
latory power concerning high product standards and
environmental protection Against the back-
ground of global trade conflicts and its ambitious
climate and sustainability objectives, the EU is also
working on adapting its strategic planning docu-
ments, agendas, action plans, as well as the objectives
and measures set out in these in order to increase its
ability to externalise European standards. The politi-
cal use of the “Brussels effect” now extends beyond
the mere protection of European consumers and
producers and increasingly endeavours to extend
European values, political objectives, and global
standards, such as the protection of universal human
rights as well as environmental and climate protec-
tion measures. As part of the European Green Deal,
the Commission intends to encourage the EU’s inter-
national partners in the future “to design similar
rules that are as ambitious as the EU’s rules, thus
facilitating trade and enhancing environment pro-
tection and climate mitigation in these countries”.32
The European internal market is increasingly devel-
29 European Commission, A Connected Digital Single Market
for All, COM (2017) 228 final (Brussels, 10 May 2017), 22.
30 Idem, Shaping Europe’s Digital Future (see note 18), 2.
31 Katharina Holzinger and Thomas Sommerer, “‘Race to
the Bottom’ or ‘Race to Brussels’? Environmental Competi-
tion in Europe”, Journal of Common Market Studies 49, no. 2
(2011): 315–39.
32 European Commission, The European Green Deal,
COM(2019) 640 final (Brussels, 11 December 2019), 21.
oping to serve the EU’s value-based international
policies and
EU member states benefit from the internal market
and Customs Union in two ways: through the advan-
tages of trade with third countries and through the
benefits for their own economies. On the one hand,
the common market provides external security and
strengthens the position of member states in global
competition. On the other hand, various studies have
shown that trade between countries in the internal
market has also increased significantly, especially
since the major enlargement round in 2004 with
the accession of eight Central and Eastern European
countries. The Commission calculates that the annual
benefit from integration into the internal market for
the EU-27 member states is almost 6 per cent of gross
national income (GNI), or € Although
the studies evaluated by the Commission show that
the positive effects of market integration are unevenly
distributed between member states and regions, they
nevertheless show that the internal market is worth-
while for all member states.
The alignment of the regulatory density
and depth of the four market freedoms
is an ongoing task.
There are also differences in the density and depth
of regulations, both in terms of the four market free-
doms of the internal market as well as public procure-
33 David Bach and Abraham L. Newman, “The European
Regulatory State and Global Public Policy: Micro-institutions,
Macro-influence”, Journal of European Public Policy 14, no. 6
(2007): 827–46.
34 The Commission draws on three recent studies and
calculates an average value from their results. See European
Commission, The Performance of the Single Market for Goods after
25 Years. Final Report (Luxembourg, July 2019). The underly-
ing studies calculate a positive internal market effect for
the EU-27 ranging from around per cent of GNI or €530
billion (Bertelsmann Foundation) to per cent of GNI or
€1,500 billion (in ‘t Veld). See the studies of: Jan in ‘t Veld,
Quantifying the Economic Effects of the Single Market in a Structural
Macromodel, European Economy Discussion Paper no. 94
(Luxembourg: Publications Office of the European Union,
2019); Gabriel Felbermayr, Jasmin Gröschl and Inga Heiland,
Undoing Europe in a Quantitative Trade Model, IFO Working
Paper 250 (Munich: ifo Institute – Leibniz Institute for Eco-
nomic Research at the University of Munich, January 2018);
Giordano Mion and Dominic Ponattu, Estimating Economic
Benefits of the Single Market for European Countries and Regions,
Policy Paper (Gütersloh: Bertelsmann-Stiftung, May 2019).
SWP Berlin
A European Economic Policy in the Making
October 2020
ment. Divergences still exist between markets for goods
and services, and these are reflected in the volume of
intra-European trade. Whereas the internal market for
services in the EU-28 was responsible for an aver- age
of per cent of GNI in 2017, the exchange of goods
contributed per cent to
The transposition of internal market directives into
national law is of great importance for the legal cer-
tainty of all market participants. According to a list36
drawn up by the European Commission, by 1 Novem-
ber 2019 a total of 1,083 internal market directives37
had been adopted that were – or are still to be –
transposed by national The Commission
regularly monitors compliance with the transposition
deadlines, because if European legislation is not trans-
posed within the prescribed time frame or is transposed
incompletely, the internal market gradually loses
coherence and significance. The Commission sets
margins and publishes the results in an annual score-
Only a maximum of per cent of EU in-
ternal market legislation in individual member states
is not transposed, or transposed too late or incom-
The Commission’s Internal Market Score-
board 2020 provides an overview of the state of the
transposition of directives in the individual member
states, and the degree of openness and integration of
the markets for 2019, showing that the average EU
transposition deficit was per cent of all directives,
35 European Commission, Single Market Scoreboard 2019 –
Trade in Goods and Services,
market/scoreboard/integration_market_openness/trade_
goods_services/ (accessed 13 August 2020).
36 The list is available at:
market/score/docs/relateddocs/20191101/
(accessed 8 August 2020).
37 The Commission includes all directives that, under
Articles 26 and 114 TFEU, can have an impact on the four
freedoms of the internal market, as well as on employment,
taxation, social policy, education, culture and media, public
health, energy, consumer protection, and the environment.
38 The deadline for transposition of the latest listed In-
ternal Market Directive No. 2019/1158 of 20 June 2019 on
reconciliation of professional and private life for parents
and carers is 2 August 2022.
39 The European Commission publishes compilations at:
(accessed
8 August 2020).
40 The widening of the tolerated transposition deficit from
per cent at the beginning of the millennium to per
cent corresponded to the steady, albeit slow, improvement in
the transposition rates of EU internal market legislation into
national law.
with an average delay of months; the conformity
deficit was per The latter refers to the differ-
ence between de jure and de facto transposition. One
indicator of this disparity is the infringement proceed-
ings that the Commission launches against a member
state for the incorrect transposition of a directive.
Although the number of proceedings recently has in-
creased slightly, in the long term it has been reduced
from a peak in 2007/08.
A decade ago, Mario Monti had already made pro-
posals for adapting the single market to new eco-
nomic, employment, and sustainability challenges in
a report named after The Commission responded
with a number of These strategies with
packages of measures to further develop the single
market were followed by sector-specific and market-
opening legislative proposals for an Energy Union,
a Banking Union, and a Capital Market Union. This
essentially horizontal approach of the Commission is
complemented by analyses and strategies for individ-
ual sectors of the economy, ranging from the auto-
motive, space, and chemical industries to the social
With this sectoral approach accompany-
ing the policy, the Commission is attempting to focus
more strongly on the horizontal objectives of competi-
tiveness and the capacity for innovation and adap-
tation of a common internal market policy.
Member states took up the Commission’s proposals
and sought to integrate the wide range of initiatives,
strategies, action plans, and individual measures into
an overall coherent strategic economic policy ap-
41 European Commission, Single Market Scoreboard 2020.
The report is available at:
market/scoreboard/performance_overview/
(accessed 8 August 2020).
42 Mario Monti, A New Strategy for the Internal Market (Brus-
sels, 9 May 2010). However, Monti’s report had also identi-
fied an integration and market fatigue: “The Internal Market
is now more unpopular than ever, yet Europe needs it more
than ever.”
43 European Commission, Single Market Act. Twelve Levers
to Deliver Growth and Confidence – Together for New Growth,
COM(2011) 206 final (Brussels, 13 April 2011); idem, Single
Market Act II. Together for New Growth, COM(2012) 573 final
(Brussels, 3 October 2012); idem, Upgrading the Single Market:
More Opportunities for People and Business, COM(2015) 550 final
(Brussels, 28 October 2015).
44 The European initiatives in particular sectors are avail-
able at: European Commission, Internal Market, Industry, Entre-
preneurship and SMEs,
(accessed 8 August 2020).
SWP Berlin
A European Economic Policy in the Making
October 2020
proach. The spring European Council on 21–22
March 2019 identified the deepening of the European
Economic and Monetary Union and the internal
market, a strong industrial policy, a forward-looking
digital policy, and an ambitious and robust trade
policy as elements of this “integrated approach”.45
Competition law and industrial policy
In the field of industrial policy, the European Com-
mission is also focussing on the development of
strategies to arrive at a common understanding of
future guidance and challenges. A paper that was
presented in 2017 to prepare the EU for the “new
industrial age” and launch a “holistic and forward-
looking vision for Europe’s industry”46 was followed
by a proposal for such a vision in 2020. In the coming
decade, the sector must become greener, more sus-
tainable, and digital, all while maintaining its global
competitiveness and social sustainability. As with
its previous strategy papers, the Commission avoids
direct intervention and limits itself to improving the
economic framework conditions for industrial enter-
prises and accompanying activities. The aim is to
support the digitisation of industry and the internal
market, and to promote initiatives to achieve climate
neutrality and a CO2-saving recycling economy.
Through industrial innovation and the expansion of
research and development programmes, Europe’s
industrial and strategic autonomy is to be strengthened
and the development of key technologies supported.
In addition to these IPCEI (Important Projects of Com-
mon European Interest) – for example in robotics
and microelectronics as well as biomedicine and
nanotechnologies – European value chains or “in-
dustrial ecosystems” should be developed. The use of
foreign direct investment should be examined more
closely than in the With this new strategy, the
Commission confirms its more business-supporting
and framework-based approach to influence Euro-
pean industrial policy by agreeing on common objec-
tives. For key technologies only, the Commission
45 European Council, Conclusions of the European Council (21
and 22 March 2019) (Brussels, 22 March 2019), points 2 et seq.
46 European Commission, Investing in a Smart, Innovative and
Sustainable Industry. A Renewed EU Industrial Policy, COM(2017)
479 final (Brussels, 13 September 2017), 5.
47 Idem, A New Industrial Strategy for Europe, COM(2020) 102
final (Brussels, 10 March 2020), 1.
proposes individual measures to provide an impetus
or incentive, such as investment in the development
of batteries to meet low-emission mobility targets.
In addition, some member states support EU indus-
trial policy measures. Following a French initiative,
a group of 20 member states has been meeting regu-
larly since 2013 to coordinate their national industrial
policies as “Friends of Industry” and agree on com-
mon objectives and measures. The member states
have now agreed on agenda-setting objectives for the
internal market and a European industrial policy, as
well as measures to boost the growth and competi-
tiveness of the European economy. In addition, there
were initiatives to modernise European competition
policy and develop accompanying policies, such as
education and research policy, support for SMEs, and
measures to promote sustainability and climate pro-
tection.
In principle, European industrial policy creates
opportunities to intervene in existing or emerging
product markets – and is thus inevitably subject to
tensions with European competition, anti-trust, and
state aid law and the European rules on public pro-
curement, which are monitored by the Commission.
The Commission’s neutrality – or that of the respon-
sible Directorate-General for Competition – ensures
that decisions are accepted and thus applied. The
Commission is extremely positive about its work:
“The predictability and credibility of the EU’s system
has made the Commission one of the leading and
most influential competition authorities in the
world.”48
A reform of competition policy
should make “European
champions” possible.
However, Germany, France, and Poland are now
questioning the Commission’s prominent role as a
competition authority and calling for a comprehen-
sive reform of European competition policy. New
global challenges require:
a) an adjustment to the changing international com-
petition in which those companies, in particular
from China, with state support may distort fair
competition;
48 Idem, Report on Competition Policy 2018, COM(2019) 339
final (Brussels, 15 July 2019), 1.
SWP Berlin
A European Economic Policy in the Making
October 2020
b) a greater consideration of the impact of digitisation
on product and service
In summer 2019, the German, French, and Polish
ministries of economic affairs presented proposals –
Berlin linked its initiative for a national Industrial
Strategy 2030 to the European The three
ministers called on the Commission to modernise its
guidelines for mergers in order to be better able to
deal with takeover attempts by state-controlled com-
panies from third countries in the European mar-
ket, and to examine more efficiently and quickly
whether – and to what extent – large international
tech groups are abusing their dominant positions. By
merging European companies, they want to enable
the creation of “European champions” in order to
remain globally The three member
states also called for a political assessment of issues
regarding competition law. In the Competitiveness
Council (COMPET) the ministers should be able to dis-
cuss and influence the Commission’s actions, down
to the level of individual decisions, and even annul
decisions if necessary. The aim of this trio-initiative is,
in addition to responding to the new global challeng-
es facing European competition policy, to limit the
Commission’s dominant role in the interpretation
and application of competition law. However, this
objective is by no means shared by all member states.
The Dutch government, for example, in a separate
position paper, advocates maintaining and further
strengthening the political neutrality and independ-
ence of European competition The far-reach-
49 Jacques Crémer, Yves-Alexandre de Montjoye and Heike
Schweitzer, Competition Policy for a Digital Era (Luxembourg,
2019); Oliver Budzinski and Annika Stöhr, “Competition
Policy Reform in Europe and Germany – Institutional
Change in the Light of Digitization”, European Competition
Journal 15, no. 1 (2019): 15–54.
50 Federal Ministry for Economic Affairs and Energy,
Modernising EU Competition Policy, available at: https://www.
(accessed 9 August 2020).
51 The merger plans of Siemens and Alstom in the rail
transport sector were justified with this argument; the com-
petitor was the Chinese manufacturer China Railway Rolling
Stock Corporation, which was created from the merger of
the two state-owned companies CSR and CNR. See European
Political Strategy Centre, EU Industrial Policy after Siemens-
Alstom. Finding a New Balance between Openness and Protection
(Brussels, 18 March 2019).
52 Permanent Representation of the Netherlands to the
European Union, Non-paper – Strengthening the Level Playing
Field on the Internal Market (Brussels, 9 December 2019), https://
ing objectives of the trio and the criticism of the Com-
mission will therefore have to be discussed further
among the member states.
In addition, the application of European competi-
tion law by the Commission and the national com-
petition authorities, as well as its interpretation by
the ECJ, is by no means purely inflexible or unadapt-
able and, as claimed, has left the changing political
environment unrecognised. Instead, general econom-
ic policy objectives are also taken into account; there
is therefore room for adjustments and policy changes.
In particular, the European Commission’s greater
consideration of economic and consumer protection
concerns and consequences in the application and
interpretation of European competition law, which
has remained virtually unchanged, has led since the
1990s to an “economic approach” to European – and
subsequently also member state – competition law
and its
Strategic planning and economic
policy coordination
The EU has only limited scope for economic policy
regulation. As a driving force and agenda setter, it –
and in particular the European Commission – must
try to commit the member states to common objec-
tives in the course of economic policy coordination.
European economic process policy therefore usually
begins with the preparation of planning and strategy
documents, which helps to bring the different ap-
proaches of member states closer together. The aim
is to develop a common understanding of problems,
challenges, and objectives. In the best case, this process
ends with the agreement of a coordinated sequence
of steps for Community reactions and measures. The
main purpose of these planning and strategy docu-
ments is thus to define and specify the matters of
common interest identified in Article 121 TFEU and,
in the course of coordination, to derive the appropri-
ate measures for the economic policies of member
states.
2019/12/09/non-paper-on-level-playing-field (accessed 9 August
2020).
53 See, ., Anne C. Witt, “The European Court of Justice
and the More Economic Approach to EU Competition Law –
Is the Tide Turning?” The Antitrust Bulleting 64, no. 2 (2019):
172–213.
SWP Berlin
A European Economic Policy in the Making
October 2020
The EU’s economic policy strategies
provide the reference framework for
coordination between member states.
Since the 1990s, the Commission has endeavoured
to develop the economic process policy for which it is
responsible and to make it more effective and target-
Since 2000, it has used multi-annual growth
strategies, starting with the so-called Lisbon Strategy,55
which was replaced by the Europe 2020 strategy in
2010. The strategies have provided the reference
framework for the coordination of all strategic initia-
tives and the many economic policy coordination
processes that have been launched in the EU. With
these 10-year strategies, the Commission succeeded
in circumventing the limits of its influence on the
economic, employment, and social policies of the
member states, which are anchored in primary law:
The real political value of the strategies was that they
provided new instruments for economic policy-mak-
ing agreed between the Commission and the member
states. The real task was not the implementation of
the reform objectives, but the development of an ever
closer, more efficient, and then sanctions-based co-
ordination The Europe 2020 strategy also
made use of this soft form of economic policy-
making. However, the focus shifted to fundamental
macroeconomic issues to stabilise the euro area. To
this end, the open method of coordination was re-
placed by a new coordination instrument: the “Euro-
pean Semester”.
The Juncker Commission refrained from present-
ing a new 10-year economic policy strategy. The new
European Commission under Ursula von der Leyen,
however, took over this task with the European Green
Deal. With this “new growth strategy” for the coming
decade, it hopes to “develop the EU into a fair and
54 Then various macroeconomic and employment policy
coordination processes were established, such as the Luxem-
bourg process in the field of employment policy, the Cardiff
process for improving competitiveness and structural eco-
nomic policy reforms, and the Cologne process for macro-
economic coordination.
55 At their meeting in Lisbon in March 2000, EU leaders in
the European Council committed themselves to the strategic
goal of making the Union the most competitive and dynamic
knowledge-based economy in the world by 2010 and to
achieving full employment.
56 See Peter Becker, “Integration ohne Plan – Die neue
EU-Wachstumsstrategie ‘Europa 2020’”, Zeitschrift für Politik-
wissenschaft 21, no. 1 (2011): 67–91.
prosperous society with a modern, resource-efficient
and competitive economy”.57
The European Semester
Since 2011, the European Semester has been at the
centre of economic policy coordination in order to
more closely interlink the diverse coordination and
agreement processes in the individual policy areas.
It usually starts in November with the presentation
of a comprehensive so-called autumn In
the EU Annual Growth Report, the European Com-
mission analyses the economic situation in the EU
and the euro area and presents its forecast for the
following year, supplemented by draft reports on the
implementation of the Broad Economic Policy Guide-
lines and the Employment Guidelines, as required
by the TFEU. In addition, the Commission provides
assessments of the member states’ stability and
convergence programmes and, since 2012, an early
warning report on their macroeconomic imbalances.
On the basis of these analyses, the European Com-
mission proposes economic, employment, and social
policy priorities for action for the EU and the euro
area. The member states examine the proposals, in
particular in the Economic and Financial Affairs
Council (ECOFIN), the COMPET, and the Employment,
Social Policy, Health and Consumer Affairs Council
(EPSCO). Meanwhile, the Commission prepares the so-
called Winter Package: a separate country report for
each member state in which it analyses and evaluates
the economic, employment, social, and budgetary
policy decisions and measures over the past year and
compares them with the common European objec-
tives and the Union’s reform recommendations for
member states. These recommendations for measures
and reforms are derived from the progress or prob-
lems of the member states and presented by February
of the following year.
57 European Commission, The European Green Deal
(see note 32), 2.
58 For the current European Semester 2020, the new Euro-
pean Commission has changed the name to “Report on Sus-
tainable Growth”; see idem, Annual Sustainable Growth Strategy
2020, COM(2019) 650 final (Brussels, 17 December 2019).
SWP Berlin
A European Economic Policy in the Making
October 2020
Strategic planning and economic policy coordinationStrategic planning and economic policy coordination
Figure 1
The relevant Councils also examine and discuss
this package and then submit their own assessments
and recommendations for guidelines to the European
Council. At their spring summit in March, the heads
of state and government agree on economic and em-
ployment guidelines, which must then be implemented
at the member state level, together with the country
reports and the so-called Country-specific Recommen-
dations (CSRs). Member states draw up National
Reform Programmes (NRPs) and, with regard to their
budgetary policies, their stability and convergence
programmes or, if they are not yet members of the
euro area, convergence programmes on their medium-
term budgetary policy-making. In these programmes,
they set out in detail the measures they plan to take,
the objectives they want to achieve, and how they
intend to remove obstacles to sustainable economic
growth. These NRPs are thus the member states’
counterparts to the European recommendations for
economic and employment structural reforms. They
must be received by April by the Commission, which
analyses and assesses them. The overall package of
Commission forecasts and country reports, Council
opinions, European Council guidelines, and National
Reform and Stability or Convergence Programmes
forms the basis for the CSRs. As precisely formulated
guidance, they provide the member states with guide-
lines for continuing, intensifying, or refocussing their
national structural reforms. The member states also
examine and discuss these Commission recommenda-
tions in the Council formats involved and adopt the
final reform recommendations by July – to be imple-
mented by the member states in the second half of
the year, the national semester. The Commission’s
next autumn package is then launched during the
next cycle of the European Semester in November.
The European Semester: fixed
tasks, fixed procedures, modest
progress so far.
The European Semester is thus the organisational
and administrative clamp with which the European
initiatives and instruments for closer economic policy
coordination have been held together, synchronised,
and extended beyond the limited economic policy
area since 2011. It provides the formal and substan-
tive framework for direct coordination and coopera-
tion between the European Commission and the gov-
ernments of the member states on almost all issues
of financial, budgetary, economic, employment, and
social policy.
The country reports also encourage bilateral ex-
changes between the ministries concerned in the
member states and the Commission services on indi-
cators, findings, and conclusions as well as on the
necessary, possible, and promising structural reforms.
The European Semester thus serves the development
of the member states as well as the development of a
common understanding of economic policy-making.
However, the implementation of the CSRs has not
been convincing so The evaluation annually
presented by the Commission shows that since 2011,
only 6 per cent of these recommendations have been
59 Konstantinos Efstathiou and Guntram B. Wolff, Is the
European Semester Effective and Useful? Policy Contribution no. 9
(Brussels: Bruegel, 13 June 2018).
SWP Berlin
A European Economic Policy in the Making
October 2020
fully implemented, while 16 per cent have made con-
siderable progress; 5 per cent of the CSRs have not yet
been tackled. The most serious desiderata were to be
found in the areas of competition in the services sec-
tor and long-term sustainability of public finances
(including pensions).60 The Commission also had to
admit that in some cases “there is evidence of back-
tracking on elements of major reforms adopted in
the past”.61 In principle, however, this list is purely
statistical. It does not rank priorities or distinguish
between more important from less urgent CSRs.
For Germany, the Commission stated in its country
report for 2020 that at least “some progress” had been
made in 54 per cent of the reform recommendations,
but only limited progress in 46 per cent. “Compared
to 2014–2017, Germany’s implementation of CSRs
has improved recently, though only to a limited
extent, and is now roughly in line with the average
progress made by other member states.”62
Country-specific reform
recommendations became de facto
implementation guidelines.
Although it is the European Council that takes
note of the Commission’s analyses as well as growth
and employment reports in the spring; formulates its
own broad guidelines for the European Semester on
this basis; and finally adopts the CSRs, the European
Commission dominates the European The
recommendations are proposed by the Commission,
and the member states can only deviate from this
line that the Commission proposes and push through
changes in the Council if the latter approves the
changes to the Commission proposal with a qualified
majority. The comply or explain rule in particular makes
it difficult for member states to simply reformulate,
water down, or even delete the Commission’s CSR for-
mulations. According to this rule, the Council must
60 European Commission, 2020 European Semester: Country-
specific Recommendations, COM(2020) 500 final (Brussels, 20
May 2020).
61 Idem, European Semester 2019: Country-specific Recommen-
dations, COM(2019) 500 final (Brussels, 5 June 2019), 3.
62 Idem, Commission Staff Working Document. Country Report
Germany 2020, SWD(2020)504 final (Brussels, 26 February
2020), 15.
63 See Reinout A. van der Verr and Markus Haverland,
“Bread and Butter or Bread and Circuses? Politicisation and
the European Commission in the European Semester”, Euro-
pean Union Politics 19, no. 3 (2018): 524–45.
either adopt the Commission’s proposals or publicly
explain and justify changes in a separate
This significantly enhances and strengthens the role
of the Commission. Some observers speak of “small
self-empowerment by the Commission”.65 Recom-
mendations have become de facto implementation
guidelines for the member states.
Thus, the European Semester first of all strength-
ens the role and influence of the European Commis-
sion in the intergovernmental coordination of eco-
nomic, fiscal, and employment policies of the member
However, the Commission is relatively cau-
tious and reserved in its recommendations for those
member states where the need for reform is great but
the willingness to do so is, for a variety of reasons, low.
If member states wish to influence the EU recom-
mendations under consideration, informal discus-
sions between the ministries of a national govern-
ment and the Commission prior to the adoption and
publication of the recommendations are the most
appropriate way to do so. The Semester therefore
allows – and even forces – close coordination with
the Commission. “Member states do not control the
European Semester, nor have supranational institu-
tions become all-powerful.”67 Instead, a relatively effi-
cient interaction between the European and national
executive authorities seems to be developing to tackle
reforms and remove obstacles to reform in the com-
mon interest in the member states.
Nevertheless, the role of the European Commission
in this coordination process has been significantly
enhanced. It can now influence and steer national
economic policies – as the hub of economic policy
64 European Parliament and Council of the European
Union, “Regulation No 1175/2011 of 6 November 2011
Amending Council Regulation No 1466/97 on the Strength-
ening of the Surveillance of Budgetary Positions and the
Surveillance and Coordination of Economic Policies”, Official
Journal of the European Union, no. L 306/12 (23 November
2011): 12–24 (Article 2ab(2)).
65 Michael W. Bauer and Stefan Becker, “The Unexpected
Winner of the Crisis: The European Commission’s Strength-
ened Role in Economic Governance”, Journal of European Inte-
gration 36, no. 3 (2014): 213–29 (223).
66 See Renauld Dehousse, “Why Has the EU Macroeconomic
Governance Become More Supranational?” Journal of European
Integration 38, no. 5 (2016): 617–31.
67 Amy Verdun and Jonathan Zeitlin, “Introduction:
The European Semester As a New Architecture of EU Socio-
economic Governance in Theory and Practice”, European
Journal of Public Policy 25, no. 2 (2018): 137–48 (144).
SWP Berlin
A European Economic Policy in the Making
October 2020
coordination. The soft coordination that used to be
based on Community targets and non-binding recom-
mendations is now giving way to a markedly stronger
economic and reform policy-making with an increas-
ingly European character and with centralising and
harmonising approaches. This trend will continue with
the new growth strategy: the European Green Deal.
Incentives through funding
With the help of the European Semester, financial
incentives through European funding policies serve as
important supplements to European economic policy-
making. The Structural Funds are the focus here: For
some years now, they have been slowly but increas-
ingly developing into an important economic policy
steering instrument of the EU with a “clear invest-
ment strategy in every region”.68 The soft medium- to
long-term goals of the 10-year growth strategies and
the short-term reform priorities in the course of the
European Semester can be tightened up with the in-
struments of In the current Cohesion
Policy funding period 2014 to 2020, this took the form
of so-called macroeconomic conditionality. This form
of conditionality, which is still highly controversial
today, links the disbursement of money from the
Structural Funds to compliance with the EU’s eco-
nomic policy guidelines and The Commission
can ask a member state to change its funding prior-
ities so that the European Structural Funds serve the
common economic policy objectives and the imple-
mentation of CSRs in the context of the European
Semester. It may also suspend all or part of the com-
mitments and payments of Structural Funds if a
68 European Commission, Investing in Europe’s Future. Fifth
Report on Economic, Social and Territorial Cohesion (Commission
Report) (Luxembourg: Publications Office of the European
Union, 9 November 2010), 25.
69 See Peter Becker, “Solidarité et conditionnalité: deux
principes directeurs de la politique européenne de cohésion”,
Revue française de finances publiques 141 (February 2018): 67–80.
70 The European Commission had specified the provisions
of Article 23 of the Regulation on European Structural and
Investment Funds (ESI Regulation) in guidelines. See Euro-
pean Commission, Guidelines for the Application of Measures to
Establish a Link between the Effectiveness of the European Structural
and Investment Funds and Sound Economic Governance under Article
23 of Regulation (EU) No 1303/2013, COM(2014) 494 final (Brus-
sels, 30 July 2014).
member state fails to comply with the guidelines and
recommendations of economic policy coordination.
The Structural Funds will
increasingly serve an evolving
European economic process policy.
Additional strategic planning and control instru-
ments in the structural policy support programmes of
the regions – such as the Common Strategic Frame-
work and the conclusion of Partnership Agreements
between each member state and the European Com-
mission – also ensure that priorities, recommenda-
tions, and reform goals become binding guidelines
beyond the division of competences in the European
treaties. This form of “soft influence”71 enables the
Commission to examine and enforce compliance with
economic, financial, employment, budgetary, and
social policy objectives and guidelines. The European
Structural Funds no longer just serve to promote
intra-European solidarity between prosperous and
poorer regions, but are increasingly becoming policy-
making instruments of an evolving European eco-
nomic policy. This change in function is also evident
in the fact that all regions in the EU are now eligible
for funding, in principle. This steering or push-effect
of European funding policy will be further enhanced
in the funding period 2021 to 2027. The European
Commission’s claim to control is becoming increas-
ingly apparent.
European economic stabilisation policy: The
EIB and the Juncker Plan for strategic
investments
Between 2007 and 2014, in response to the deep euro
crisis, the volume of credits by development banks
in the EU increased sharply. Both the EIB and the
national development banks gained in importance as
economic policy actors,72 as they took on the task of
71 John Bachtler and Carlos Mendez, “Who Governs EU
Cohesion Policy? Deconstructing the Reforms of the Struc-
tural Funds”, Journal of Common Market Studies 45, no. 3 (2007):
535–64 (556).
72 Daniel Mertens and Matthias Thiemann, “Building a
Hidden Investment State? The European Investment Bank,
National Development Banks and European Economic
Governance”, Journal of European Public Policy 26, no. 1 (2019):
23–43; idem, “Market-based but State-led: The Role of Pub-
lic Development Banks in Shaping Market-based Finance in
SWP Berlin
A European Economic Policy in the Making
October 2020
initiating an anti-cyclical economic policy by means of
investment This made close cooperation
between the EIB – which increased both its share capi-
tal and its investment capital – and the European
Commission essential, “bringing the two institutions
closer together”.74
The Commission, under its then-President Jean-
Claude Juncker, pushed ahead with the EIB’s involve-
ment in its economic policy initiatives. With the
European Fund for Strategic Investments (EFSI) –
the so-called Juncker Plan for Strategic Investments
or as some observers put it, “Juncker’s new narrative
regarding the importance of investment”75 – the
focus was on a European investment offensive with
stimulating financial incentives. The efforts to close
the Europe-wide crisis-related investment gap without
having to make excessive use of the EU budget were
aimed at economic recovery, the creation of new jobs,
and the development of European competitiveness.
At the heart of this offensive was the EFSI, a joint
and coordinated initiative of the European Commis-
sion and the EIB to mobilise private investment capi-
tal for strategic investment projects in the EU. How-
ever, it is not a fund at all, but an initial Union
financial guarantee of €21 billion: €16 billion from
the EU budget and another €5 billion from the EIB.
The term of this loan guarantee was initially limited
to three years. Thanks to these guarantees, the EIB
expanded its business volume by around €61 billion,
which in turn – including private capital – should
result in a total investment volume of at least €315
billion in the real economy over the three years.
At the end of 2017, the Commission and the EIB
extended their guarantees in the course of a first -
the European Union”, Competition & Change 22, no. 2 (2019):
184–204.
73 At the end of 2008, when the financial crisis started to
spill over from the United States into the European Union
economy, the Commission proposed a recovery plan: In addi-
tion to stimulus measures from the EU and member states
totalling €200 billion, it called on the EIB to step up its inter-
ventions in the form of loans, equity, guarantees, and risk
financing. See European Commission, European Economic
Recovery Plan, COM(2008) 800 final (Brussels, 25 November
2008).
74 Mertens and Thiemann, “Building a Hidden Investment
State?” (see note 72), 33.
75 Isabel Camisão and Paulo Vila Maior, “Failure or Suc-
cess: Assessing the European Commission’s New Strategy to
Foster EU’s Economic Recovery”, Journal of European Integra-
tion 42, no. 2 (2020): 195–211.
interim evaluation and adjustment. A total invest-
ment volume of €500 billion has now been targeted.
The duration of the EFSI was extended until the end
of 2020 and new funding targets were added.
In its evaluation report on the relevance, effective-
ness, and efficiency of the EFSI, the EIB came to an
overall positive conclusion. The EFSI had succeeded
in “mobilising a large volume of investment”76 and
achieving the set of investment objectives. The Com-
mission was also very satisfied. According to the
Commission, by October 2019 the EFSI had mobilised
additional investments of € billion, increased
the EU’s gross domestic product by per cent, and
created million additional jobs. In addition, the
EFSI’s impact would be felt in the long term, up until
The European Court of Auditors, however,
drew a mixed conclusion in its report. The EFSI had
proved to be an “effective instrument”, even if the
estimates of the mobilised investments were partly
exaggerated and excessive. However, it has replaced
funding from other EU financial instruments and
overlapped with the European Structural
But however one evaluates the work of the EFSI,
the necessary close cooperation between the Euro-
pean Commission and the EIB has led to an expan-
sion of the range of economic policy instruments in
the hands of the Commission. “In this process, the
European Commission has gradually expanded dis-
cretion over investment vehicles, including the EIB.”79
With the continuation of the EFSI in the new InvestEU
Fund80 for the period 2021 to 2027, as proposed by
the Commission, this trend towards a European in-
vestment management and steering policy, influenced
primarily by the European Commission, could be con-
tinued and intensified.
76 European Investment Bank, Evaluation of the European
Fund for Strategic Investments (Luxembourg, June 2018), 3.
77 See European Commission, “Juncker Plan Shows Tan-
gible Impact on Jobs and Growth in the EU”, Press Release
(Brussels, 22 October 2019).
78 European Court of Auditors, “European Fund for Stra-
tegic Investments: Action Needed to Make EFSI a Full Suc-
cess”, Official Journal of the European Union, (31 January 2019),
Special Report no 03/2019.
79 Mertens and Thiemann, “Building a Hidden Investment
State?” (see note 72), 37.
80 European Commission, Proposal for a Regulation Establish-
ing the “InvestEU” Programme, COM(2018) 439 final (Brussels, 6
June 2018).
SWP Berlin
A European Economic Policy in the Making
October 2020
The European Economy, the
Green Deal, and the Pandemic
With the European Green Deal, the Commission,
under its new president, Ursula von der Leyen, has
proposed the next 10-year economic policy strategy.
According to the European Commission, the Green
Deal is a “new start”81 for European economic policy;
the Union has “a unique opportunity” in the next
decade “to lead the transition to a fair, climate-neutral
and digital Europe”.82 With this strategy, the Commis-
sion wants to develop a European leitmotif that will
in the future “put sustainability and the well-being of
citizens at the centre of economic policy”.83 Economic
growth is to be decoupled from the use of resources so
that the “natural capital of the EU” can be protected
and preserved, and this transition can be organised
in a fair and inclusive manner. “Competitive sustain-
ability” is “at the heart of Europe’s social market
economy”.84
The transformation of the European economy in
the long term is one goal of European economic
policy-making; the other is to cushion the foreseeable
deep recession as a result of the lockdowns to fight
the Covid-19 The EU institutions want to
combine the short-term crisis response with massive
economic stimulus and the long-term goal of a cli-
mate-neutral economy. Whether for the ambitious
Green Deal or in response to the socio-economic con-
81 Idem, Annual Sustainable Growth Strategy 2020
(see note 58), 1.
82 Idem, Commission Work Programme for 2020, COM(2020)
37 final (Brussels, 29 January 2020), 1.
83 Idem, The European Green Deal (see note 32), 3.
84 Idem, European Semester 2020: Country-specific Recommen-
dations (see note 60), 1.
85 See A Roadmap for Recovery, paper of the President of the
European Council and the President of the European Com-
mission (Brussels, 15 April 2020); European Commission,
Europe’s Moment: Repair and Prepare for the Next Generation,
COM(2020) 456 final (Brussels, 27 May 2020), 3; European
Parliament, Resolution New MFF, Own Resources and Recovery
Plan, P9_TA-Prov(2020)0124 of 15 May 21020.
sequences of the pandemic and the lockdowns, in
both cases the EU is making use of its traditional
instruments for European economic policy-making:
regulation, competition and state aid law, economic
policy coordination, and finally financial stimulus
and incentives.
Internal market regulation and the scope for
state aid and competition law
The internal market will remain at the heart of Euro-
pean economic policy. However, the Commission
fears that “the further integration advances, the more
politically challenging every ‘extra mile’ becomes
as we touch on increasingly sensitive economic and
social issues”. It therefore requires “more political
courage and determination than 25 years ago, and
greater effort than ever to close the gap between
rhetoric and delivery”.86 The internal market needs
to be developed, particularly in the areas of digital
economy, capital, and financial markets and energy;
services markets in particular offer the greatest poten-
tial for further The development of new
and sustainable digital technologies is a prerequisite
to ensure the EU’s “technological sovereignty” and
global leadership and to further stabilise the euro area
with a banking and capital market The
changes in worldwide economic structures and trade
flows as a result of digitisation and globalisation
will make adjustments of the European internal mar-
ket – and thus of EU economic policy – inevitable.
86 European Commission, The Internal Market in a Changing
World (see note 26), 1.
87 Idem, Staff Working Document, Single Market Performance
Report 2019, SWD (2019) 444 final (Brussels, 17 December
2019).
88 Idem, Annual Sustainable Growth Strategy 2020
(see note 58).
SWP Berlin
A European Economic Policy in the Making
October 2020
The Commission has now presented an analysis89
of the main obstacles, 13 of them, to advancing inte-
gration in the internal market. With a total of 18
actions – ranging from new online platforms to the
digitisation and modernisation of national adminis-
trations, as well as training and exchange of judges –
the Commission90 aims to overcome these regulatory,
administrative, and practical obstacles. The actions
will be based on intensified cooperation and partner-
ship between the monitoring and enforcement
authorities in the member states and with the Com-
mission, with the aim being to “enrich our lives in
many ways” through “digital solutions such as com-
munications systems, artificial intelligence or quan-
tum technologies”.91 To this end, five years after an
initial strategy92 for the digital internal market, the
Commission has now presented a new data strategy93
and a White Paper on artificial
The Commission already tabled recommendations
for the adaptation of existing European directives and
regulations to the Green Deal, for example on the
revision of the Emissions Trading System and its ex-
tension to additional sectors. By contrast, only a few
truly new European legislative procedures were pre-
sented. What is new is the proposal for a European
climate law,95 which will legally establish the com-
mon goal and the implementation path to climate
neutrality by 2050. Also new are a CO2-limit compen-
sation system and legal provisions to ensure a safe,
cycle-oriented, and sustainable value chain for bat-
teries. According to the European Commission, the
Green Deal is intended to support the transition to
climate-neutral production processes with adapted
state aid regulations and guidelines, which, for
89 Idem, Identifying and Tackling Barriers to the Single Market,
COM(2020) 93 final (Brussels, 10 March 2020).
90 Idem, The Long-term Action Plan to Improve the Implemen-
tation and Enforcement of Single Market Legislation, COM(2020) 94
final (Brussels, 10 March 2020).
91 Idem, Shaping Europe’s Digital Future (see note 18), 2.
92 Idem, Strategy for a Digital Single Market for Europe,
COM(2015) 192 final (Brussels, 6 May 2015).
93 Idem, A European Data Strategy, COM(2020) 66 final (Brus-
sels, 19 February 2020).
94 Idem, White Paper on Artificial Intelligence – A European
Approach to Excellence and Trust, COM(2020) 65 final (Brussels,
19 February 2020).
95 Idem, Proposal for a Regulation Establishing the Framework
for Achieving Climate Neutrality and Amending Regulation (EU)
2018/1999 (European Climate Change Act), COM(2020)/0036
(COD) (Brussels, 4 March 2020).
example, offer financial support for companies that
decarbonise or electrify their production processes.
Member states should also be given greater financial
leeway for the energy-efficient conversion of build-
ings and district heating networks, the transition to a
circular economy, investments in energy production
from renewable sources for own consumption, and
aid to facilitate the phasing out of coal-fired power
stations.
The economic shock caused by the Covid-19 pan-
demic has magnified the challenge. The resulting
drastic slump in growth, the increase in unemploy-
ment, and business insolvencies in the EU also threaten
the integrity of the internal market. To cushion the
asymmetric consequences of the Europe-wide lock-
downs for the economies united in the internal mar-
ket, the EU member states agreed in April on an
initial corona aid package of €500 billion. In addition
to the provision of credit support to the euro coun-
tries through the European Stability Mechanism and
the new €100 billion instrument SURE (Support to
mitigate Unemployment Risks in an Emergency)96 to
finance national short-time working schemes, the
immediate measures focussed in particular on easing
state aid control. The European Commission presented
temporary state aid measures that it considered com-
patible with the single market and which it intended
to approve very quickly following prior notification
by member states. These included support measures
such as direct grants, loans, guarantees, and tax ben-
By reviewing foreign investment, the Commis-
sion sought to protect strategic European companies
and institutions. The Union responded to the supply
shortages that became apparent at the beginning of
the pandemic and to the disruption of global supply
chains – an obvious market failure – with joint ac-
tion on the procurement of medical products. Finally,
to protect economic freedoms in the internal market,
the Commission urged member states to keep their
borders open for the exchange of goods and to allow
the entry of workers, particularly in systemically
important functions. Even in the crisis, the integrity
96 Idem, Proposal for a Council Regulation Establishing a Euro-
pean Instrument for Temporary Assistance for Reducing the Risks
of Unemployment Resulting from the COVID 19 Crisis (SURE),
COM(2020) 139 final (Brussels, 2 April 2020).
97 Idem, Temporary Framework for State Aid to Support the
Economy in Response to the Current COVID-19 Outbreak, C(2020)
1863 final, OJ C(2020) 1863 final (Brussels, 19 March 2020).
SWP Berlin
A European Economic Policy in the Making
October 2020
and stability of the internal market thus remained at
the forefront of European economic policy responses.
The new focus of the European Semester
With the European Green Deal, the Commission
announced many new plans and strategies: a Euro-
pean climate pact; a strategy for sustainable finance;
another called “From Farm to Fork” to improve the
environmental performance of agriculture and food
processing; a new biodiversity strategy; a strategy for
sustainable and intelligent mobility; and an action
plan for recycling. With the help of the European
climate law, a legally binding target for achieving
climate neutrality is to be agreed. The Commission
intends to monitor and evaluate the national imple-
mentation and enforcement plans every five years.
Should a member state deviate from the agreed Euro-
pean approach in its assessment, it can publish cor-
responding reform recommendations as part of the
CSR in the framework of the European Semester.
In addition, thanks to the European Structural
Funds, the priorities of public investment in the
member states and the regions will be more closely
coordinated across Europe and targeted towards the
new climate policy objectives. Already for the Euro-
pean Semester 2019, the Commission had listed
investment priorities for each member state in its
annual country reports – and thus implicitly defined
the priorities for support with Structural Funds –
“in order to provide a clear roadmap for reforms”.98 In
the future, member states will be required to in-
corporate the recommendations into their investment
strategies and take them into account when imple-
menting their structural support programmes. The
investment guidelines thus identify the “priority
investment areas and framework conditions for effec-
tive delivery of the 2021–2027 Cohesion Policy”.99
They also require member states to report regularly
on their progress in implementing CSRs and their
investment programmes.
98 Idem, A Modern Budget for a Union That Protects, Strengthens
and Defends. Multiannual Financial Framework 2021–2027,
COM(2018) 321 final (Brussels, 2 May 2018), 11.
99 So the formulation in the 2019 Country Report for Ger-
many; see Idem, Commission Staff Working Document. Country
Report for Germany 2019 with In-depth Review of the Prevention
and Correction of Macroeconomic Imbalances, SWD(2019)1004
final/2 (Brussels, 27 February 2019), Appendix D, 73.
The climate and sustainability goals of
the Green Deal are becoming the
guiding principle of the
European Semester.
In the European Semester 2020, the Commission
also integrated the 17 Sustainable Development Goals
of the 2030 Agenda for Sustainable Development of
the United Nations (UN).100 In the future, each coun-
try report will be accompanied by a statement on the
state of implementation of these global goals in the
respective member The European Semester,
which was originally intended to promote economic
growth and employment, will thus be expanded to
include sustainability policy as well as environmental
and social objectives – differentiated according to the
specific circumstances of the member states, but
closely coordinated at the European
In this way, the technical and administrative co-
ordination approach of the European Semester can
be used for almost all policy areas. The Semester thus
becomes the central steering instrument of a compre-
hensive European economic process policy. However,
this extension of scope as well as monitoring capabil-
ities is also being criticised: This, critics say, leads to
an overburdening of the Semester, while the concen-
tration on the original economic and financial policy
reform goals and approaches is lost. Some member
states fear there will be negative effects on the en-
forceability and binding nature of the instrument.
However, the Covid-19 pandemic has shown the
need for closer economic policy coordination and
the need to focus national strategies on common
objectives and additional areas. The national crisis
packages intended to contain the recession differ
considerably regarding the financial volume being
made available. However, the core aim of all pro-
grammes is to cushion the social and economic
100 Idem, 2020 European Semester: Assessment of Progress on
Structural Reforms, Prevention and Correction of Macroeconomic
Imbalances and Results of the In-depth Review Provided for in Regu-
lation (EU) No 1176/2011, COM(2020) 150 final (Brussels,
26 February 2020).
101 Already the European Semester in 2018 was extended
to include social policy topics; see Björn Hacker, “Die Euro-
päische Säule sozialer Rechte: Nutzung und Nutzen”, Inte-
gration 41, no. 2 (2018): 259–72; idem, Social European Semes-
ter? The European Pillar of Social Rights in Practical Test (Berlin:
Institute for European Politics, 2018).
102 European Commission, Annual Sustainable Growth
Strategy 2020 (see note 58).
SWP Berlin
A European Economic Policy in the Making
October 2020
consequences of the crisis and to provide financial
stimulus to revive the economies after the lockdowns.
The measures now being taken at both the European
and national levels to revive the economies are to be
combined with the goal of climate neutrality. “Mov-
ing towards a more sustainable economic model,
enabled by digital and clean technologies, can make
Europe a transformational frontrunner,” says the
European
The EU is thus following the economic policy
model of “green economic growth”, which has been
in development since the turn of the millennium by
international economic institutions such as the Orga-
nisation for Economic Co-operation and Development
(OECD).104 In the course of a “holistic development
strategy”, the CSRs on structural reforms and invest-
ment in the member states are to be adapted to the
guideline of sustainable growth. Climate neutrality
in the context of the Green Deal and the UN’s sustain-
ability goals will thus become the guiding principles
for economic recovery measures – at the regional,
national, and EU levels – and for future European
economic process policy.
Financial incentives to implement the
Green Deal
In January 2020, the Commission presented a pro-
posal to finance the calculated annual investment
of €260 billion up to 2030 as a first specification of
its Green Deal communication package. The money
is to come from three sources: the EU and national
budgets, the EIB, and the private sector.
In addition to its planning for the long-term
European Green Deal and the immediate Covid-19
response, the Commission used the medium-term
stimulus measures to further focus on its policy
priorities. On 23 April 2020, the European Council, on
the recommendation of ECOFIN, combined the
approval of the first rescue package with a mandate to
the European Commission to prepare a proposal for
an additional recovery fund to provide strong
economic stimulus. On 27 May 2020, the Commission
presented this new proposal together with the Euro-
103 Idem, European Semester 2020: Country-specific Recommen-
dations (see note 60), 1.
104 See OECD, Towards Green Growth (Paris, 2011), and
World Bank, Inclusive Green Growth: The Pathway to Sustainable
Development (Washington, DC, 2012).
pean recovery fund “Next Generation EU” (NGEU)
and linked it to its Green Deal and digitisation, that
is, to its new growth strategy. The European Council
endorsed this proposal in principle at its historically
long, extraordinary summit on 17–21 July 2020.
The aim now is to create a temporary cyclical budget
alongside the usual seven-year financial framework.
A total of €750 billion will be added to the European
budget to provide targeted assistance to the regions
and sectors most affected by the consequences of the
The Multiannual Financial Framework
2021–2027
The Commission’s original draft budget for the period
2021 to 2027, adopted in May 2020, already provided
for 25 per cent of agricultural and Structural Funds
to be invested in measures to achieve the common
climate The European Council has now
decided to further increase this amount to 30 per cent
of the total European budget and also to focus the
additional money from the temporary European Eco-
nomic Recovery Plan, the NGEU, on climate action.
The temporary increase of € billion, the front-
loading of European Structural Funds with the new
programme ReactEU,107 and the newly created Just
Transition Fund (JTF) for economic transformation
support will m
