Mueller, M.: French Presidency of the Council of the European Union in 2022: What to Expect?

Mueller, M.: French Presidency of the Council of the European Union in 2022: What to Expect?

JEL classification: F00, F01, F5, N14

Key words: European Union, France, Policy Options, Outlook

Summary:

With France due to take over the presidency of the Council of the European Union in January 2022, this paper first examines the scope of the Council’s work, and then draws attention to two areas of necessary reform. The Council of the European Union directly represents the governments of the member states and can initiate major changes - if initiatives are followed by the European Commission and the European Parliament - but not in all areas. The Presidency of the Council, a role which includes planning the agenda, is important because the holder of the presidency chooses the issues will be the focus of attention, initiates discussions, suggests changes and can accelerate (or delay) efforts in certain areas. Here, the discussion recalls in particular the importance of the issues of climate change, migration, security (including cyber security), and inclusive growth. It then focuses on two discussions that the French Presidency must initiate, two areas in which the so-called “trio” of France, Czechia and Sweden (i.e. successive holders of the office of president which coordinate on policy) must promote reform: The budgetary framework and industrial policy. These crucial policy fields are all the more important as the functioning of the European institutions and the role conferred on the EU are no longer in line with current challenges.

The fiscal framework of the European Union, which was established by the Maastricht Treaty, consists of pre- and post-accession convergence criteria that member states must respect when planning and executing their national budgets, a preventive arm, and a corrective arm. The corrective arm is a set of measures aimed at sanctioning states that do not respect the budgetary rules, and can go as far as financial sanctions - however, no country has yet been subjected to such a sanction. Since the bursting of the “dot com” bubble in the early 2000s, and especially after the 2008 Transatlantic Financial Crisis, which was followed by the Eurozone sovereign debt crisis, the debt-GDP ratio of the Eurozone (and more generally of EU) countries has been rising steadily. The number of countries under an Excessive Deficit Procedure (EDP) has remained positive since 2003. Moreover, to mitigate the economic and social impacts of the COVID-19 crisis, many governments have taken countercyclical measures, including financial support, which have resulted in a drastic increase in public deficits and public debt. This recurrent non-compliance with fiscal rules indicates a mismatch between economic imperatives, on one hand, and fiscal rules, on the other. Furthermore, there is strong heterogeneity across countries, which undermines the stability of the Eurozone system as a whole. Finally, the context in which the budgetary rules were initially decided and agreed upon is quite different from the current environment, since today the cost of public debt is no longer representative of the real situation - as demonstrated by the sovereign spread between Germany and Greece in 2021. To this end, a reform (or even a restructuring) of the fiscal framework is inevitable as argued herein. Concerning European industrial policy, the interest of implementing an industrial strategy at the EU level is both to coordinate economic interests and to ensure the integration and strategic autonomy of all member states, while also respecting climate objectives. Economically, countries with industries in the same sectors have a strong interest in cooperating, whether by creating innovative hubs or facilitating the exchange of labour and knowledge, in order to foster the global competitiveness of their industries. Cooperation between countries can also be of interest in the implementation of a circular economy model, where a diverse set of companies work in synergy to better manage resources and waste. There is currently a marked heterogeneity between countries, both in terms of their rate of industrialisation, the types of industries, but also in terms of the skills of their workforce. A strategy at the EU level necessarily needs to take these differences into account; it can be seen as a multi-speed strategy, where each country adapts its national industrial policy to its own situation. It may also involve implementing educational programmes directly in countries with relatively low levels of skilled workers. Beyond the coordination of countries and the recognition of individual characteristics, certain measures benefit the entire productive sector, from SMEs to large companies, in Western European countries as well as in Eastern and Southern Europe: These include measures to support education, research and development, and investment in infrastructure. The latter aspects are essential to the digital transition, which is a contemporary strategic challenge in which many countries are still laggards. The type of industrial policy to be implemented therefore depends on the objectives, and can be sectoral or horizontal.

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