Economic and Finance Affairs in the EU
When the European Union (EU) was founded in 1957 as the European Economic Community (EEC), the goal of the original Member States was to increase economic cooperation. The EU is a single market made of up its members, many of which have also joined a monetary union with a single currency. The single market allows for the free trade of goods, as well as the free circulation of capital, people and services among member states. The EU is also a customs union with a common external tariff on goods entering the market.
Economic Governance in the EU
The current EU economic governance framework was established in 2011. One of its main components is the Stability and Growth Pact, which promotes greater fiscal coordination and requires Member States to balance their budgets. The economic and monetary union also has minimum requirements for national budgetary frameworks, which requires national fiscal frameworks to meet minimum quality standards. National budgets must also look at all administrative levels and take a multi-year perspective. Member States must take strong corrective action to control public debt or face financial sanctions through the Excessive Deficit Procedure (EDP). The EU's Macroeconomic Imbalance Procedure (MIP) also allows the EU to monitor macroeconomic trends and identify risks early in order to take preventative or corrective measures, including imposing sanctions on Member States.
The Economic and Financial Affairs Council oversees policy areas related to the EU's economy, including the euro, financial markets and capital movements, economic policy coordination, economic surveillance and monitoring budgets and public finances in Member States, and economic relations with countries outside the EU. The Council is made up of the economic, finance and budget ministers of all EU Member States. It works closely with the President of the European Central Bank and the European Commissioner for Economic and Financial Affairs, which is the European Commission member responsible for the EU's economic, financial and monetary affairs. The Council also works with the European Parliament to develop the EU's annual budget.
Member States Responsibilities
Members of the European Union form an economic and monetary union based on a single market. A key component of this economic union and broader European integration is a common currency - the euro. Fiscal policy, including managing public revenue and expenditure, remains the responsibility of national governments and authorities. Similarly, Member States have control over structural policies, including labour, capital and pension markets. Although national governments have a great deal of control over these policy areas, they must adhere to the EU's Stability and Growth Pact and coordinate with other members in order to achieve common economic goals.
The Euro and the European Central Bank
Introduced in 1999 as an accounting currency for primarily cash-less payments, the euro is the European Union's single currency. It is currently shared by 17 out of the EU's 28 Member States, with notable exceptions including the United Kingdom, Denmark, Sweden and recently acceded members. The euro was introduced as a physical form of payment in 2002. It is used by an estimated 330 million EU citizens as their currency, according to the European Union. Monetary policy for the euro is set by the independent European Central Bank (ECB) and the national central banks of Member States that have adopted the euro.
European Investment Bank
In order to support a single market for capital, one of the EU's economic policy objectives is improving access to finance. One of the main instruments to assist with access to finance is the European Investment Bank (EIB). Created in 1958, the EIB is a non-profit financial institution. The bank finances projects across the EU, as well as non-EU countries. Investments support a range of EU priorities, including regional cohesion and convergence, environmental sustainability, small and medium sized enterprise (SME) support, trans-European transportation and energy networks, the knowledge economy, and sustainable energy.
Structural Funds and Cohesion Fund
The Structural Funds and the Cohesion Fund support underdeveloped regions and economic sectors. Funds, for example, support regional development, provide emergency financial aid, and promote economic transformation and modernisation. These financial tools provide supports to reduce regional economic and social disparities between member states. Priorities for these funds are set by the European Parliament and the Council of the European Union.
The EU's Structural Funds include the European Regional Development Fund (ERDF), which supports projects related to regional development, enhanced competitiveness, regional and national cooperation, and economic change. The European Social Fund (ESF) focuses on employment and business development. Specifically, it promotes worker and business adaptability, labour market participation and access to employment, social inclusion, and partnerships. Structural Funds are delivered by regional and national intermediaries and support a range of clients, including businesses, individuals, non-profit organisations and communities.
The Cohesion Fund is targeted to Member States with a Gross National Income per inhabitant that is less than 90 percent of the EU average. Funds are used to stabilise economies, as well as address economic and social disparities. The Cohesion Fund may be used for trans-European transportation networks and projects that benefit the environment.
To learn more about the EU's economic and finance affairs, visit ec.europa.eu/economy_finance/index_en.htm.