Concept and Legal Framework of Economic Policy (EU)
Die Economic Policy of the European Union (EU) encompasses all measures and regulations by which the EU and its Member States guide and influence the entire economic order and development within the single market as well as in the international context. Economic policy in the EU is largely regulated by law and constitutes one of the Union’s central policy areas. The legal foundations derive primarily from the Treaty on the Functioning of the European Union (TFEU), supplemented by the Treaty on European Union (TEU) and various secondary legislation acts.
Primary Legal Foundations
Treaty on the Functioning of the European Union (TFEU)
Der TFEU contains the key legal norms for European economic policy. In particular, Articles 2, 3, and 5 define the division of competences between the Union and the Member States, while Part III (Titles VIII to X) contains detailed provisions on economic, employment and social, as well as monetary policy.
Articles 2 and 3 TFEU: Competences
Article 2 TFEU distinguishes between exclusive competence, shared competence, and supporting competence of the Union. Economic policy, especially the coordination of the economic policies of the Member States, falls under shared competence (Art. 4(1) and (2) TFEU), with particular emphasis on coordination.
Article 5 TFEU: Principle of Subsidiarity
The principle of subsidiarity according to Art. 5 TFEU requires that the EU acts only when and insofar as the objectives of the proposed action cannot be sufficiently achieved by the Member States at national level.
Economic and Monetary Union (EMU)
A central component of European economic policy is the Economic and Monetary Union (EMU). Title VIII (Arts. 119 to 144 TFEU) regulates the principles, objectives, and procedures for the coordination and monitoring of economic policy as well as the introduction and management of the euro.
Article 119 TFEU: Objectives of the EMU
Art. 119 TFEU stipulates as objectives the establishment of the common internal market and the gradual introduction of a common currency, to be achieved through coordinated economic policy and a unified monetary policy in accordance with the principles of an open market economy with free competition.
Articles 121 et seq. TFEU: Coordination Procedures
Medium-term coordination takes place within the framework of the European Semester pursuant to Art. 121 TFEU and includes the setting and review of economic policy guidelines, including macroeconomic monitoring.
Article 126 TFEU: Deficit Procedure
The “excessive deficit procedure” under Art. 126 TFEU and the corresponding Protocol (No. 12) form the legal basis of the fiscal monitoring mechanism. Breaches of budget requirements can trigger sanctions.
Secondary Law and EU Regulations
Economic and fiscal surveillance is based on a set of legal acts and frameworks, notably the so-called Stability and Growth Pact and several regulation packages such as the ‘Six-Pack’ and ‘Two-Pack’, which contain detailed procedural rules for fiscal control and macroeconomic supervision.
The Stability and Growth Pact (SGP)
The SGP serves to limit the budget deficits and public debt of Member States and is codified in several regulations (notably Regulation (EC) No. 1466/97, 1467/97, and amending regulations). Its instruments include:
- Early warning mechanisms for deviations from budgetary targets
- Sanctions against Member States in cases of persistent deficits
- Regular review of budgetary data
The European Semester
Das European Semester is an annual cycle of economic and budgetary policy coordination within the EU. The legal structure of this mechanism is based on various secondary legal acts, complemented by recommendations and guidelines from the Council.
Policy Instruments and Procedures
Open Method of Coordination
In addition to legally binding regulations, the ‘Open Method of Coordination’ (OMC) is applied as a flexible procedure. It is characterized by exchanging best practices, benchmarking, guideline setting, and reporting. However, it has no binding legal character, but promotes horizontal coordination among governments.
Legislative Procedure
All legal provisions of European economic policy are generally adopted through the ordinary legislative procedure (Art. 294 TFEU) with the involvement of the Council of the EU and the European Parliament. In certain cases, such as budgetary measures, special procedures with varying actors and decision quorums may apply.
Division of Responsibilities: EU and Member States
Economic policy competences remain, in core areas, formally with the Member States. The EU assumes coordinating, monitoring, and supporting functions. However, compliance with the treaty provisions, especially regarding budgetary discipline and coordination, is mandatory.
National Implementation Obligations
States are in particular obliged to submit their economic budgets to the Council and the Commission for assessment (Art. 126(3) TFEU). National measures that contravene EU legal provisions can be subject to infringement proceedings under Art. 258 TFEU.
Institutional Responsibilities
European Commission
The European Commission, as ‘guardian of the treaties’, monitors compliance with economic policy discipline, initiates measures, publishes country reports and recommendations, and can initiate infringement proceedings in case of violations.
Council of the European Union and European Council
The Council is responsible for setting general guidelines and for decisions on recommendations, sanctions or corrective measures following final deliberation. The European Council participates in strategic decisions.
European Central Bank (ECB)
The ECB is responsible for the monetary and currency policy of the Member States of the euro area. The ECB has independence within its mandate, which is based on price stability (Art. 127 et seq. TFEU).
Enforcement of Law and Sanctions
Deficit Procedure
If the reference values for budget deficit (3% of GDP) or government debt level (60% of GDP) are exceeded, the deficit procedure is initiated. Possible sanctions include fines, freezing of funding, or heightened requirements for fiscal and economic policy.
Infringement Proceedings
The Commission can take Member States to the Court of Justice of the European Union (CJEU) in the event of violations. The CJEU can issue binding judgments and, if necessary, impose penalty payments.
Economic Policy Beyond the EMU
Independent of the Economic and Monetary Union, there are numerous other economic policy competences, such as competition and state aid policy (Arts. 101 et seq., 107 et seq. TFEU), trade policy (Arts. 206, 207 TFEU), consumer and environmental policy, which also have an impact on the design and management of the economy and are regulated by a multitude of legal acts, directives, and regulations.
Future Perspectives and Legal Developments
The EU’s economic policy is in a constant state of evolution. Challenges such as crisis management (e.g., in the course of the COVID-19 pandemic), climate policy (Green Deal), digitalization, and further development of the stability framework regularly lead to adjustments of the legal bases as well as to new legal acts and coordination instruments.
Summary:
The economic policy of the European Union is comprehensively regulated by law and is based on a complex interplay of primary law, secondary law, recommendations, and coordination procedures. It covers fiscal requirements, procedures for monitoring and sanctions, a framework for legislation, and mechanisms for cooperation between the Union and Member States as well as the main responsibilities of the European institutions. The ongoing further development of the rules and structures ensures flexibility and enables adjustments to current challenges.
Frequently Asked Questions
How are economic policy competences distributed between the European Union and the Member States?
The economic policy competences are regulated in the Treaty on the Functioning of the European Union (TFEU), especially in Articles 119 to 144. In principle, economic policy falls under shared competence between the EU and its Member States. While the Member States are permitted to shape their own economic policies, they are required to align their policy, as part of an ‘Open Method of Coordination’, with the general guidelines set at Union level (Arts. 120 and 121 TFEU). The EU can set binding frameworks and coordination mechanisms, such as determining the broad guidelines of economic policy, particularly adopted by the Council and on proposal by the Commission. Implementation, however, remains primarily within national competence; the EU cannot directly regulate or steer specific economic measures but may issue recommendations or, under macroeconomic monitoring procedures, initiate sanctions. A central management instrument is the European Semester, during which economic and fiscal policy measures and objectives are monitored and coordinated.
What role do the so-called state aid rules play in the legal framework of European economic policy?
State aid rules are central in EU law, particularly enshrined in Arts. 107 to 109 TFEU. They regulate the extent to which state subsidies or other advantages granted to companies by Member States are compatible with the single market. The basic principle is the prohibition of state aid unless exceptions exist, such as for the promotion of disadvantaged regions, research and development, or crisis management. Any state aid must, in principle, be notified to and approved by the European Commission before it is granted (so-called notification procedure). The Commission assesses whether the measure distorts competition and trade between Member States or not. Unlawful aid may be reclaimed by the Commission. State aid supervision serves to protect undistorted competition and equality in the single market.
What legal regulations exist regarding the Stability and Growth Pact of the EU?
The legal basis of the Stability and Growth Pact (SGP) is found in primary law in Arts. 121 and 126 TFEU as well as in the corresponding secondary legislation (in particular Regulation (EC) No. 1466/97 and No. 1467/97). The objective is to ensure sustainable fiscal discipline in Member States and to prevent excessive budget deficits. The core procedure is the excessive deficit procedure: Member States must align their budget planning with the Maastricht criteria (a deficit of no more than 3 percent and debt of no more than 60 percent of GDP). In the event of non-compliance, recommendations are issued first; in the case of repeated non-compliance, reinforced measures such as compulsory deposits, fines, or even funding cuts may follow. Judicial review by the Court of Justice of the European Union is limited to procedural matters, not to the substantive economic policy assessment and recommendations made by the institutions.
What is the legal situation regarding the protection of the free movement of capital in EU economic policy?
The free movement of capital and payments is enshrined in Arts. 63 to 66 TFEU and is one of the fundamental freedoms of the single market. Any restrictions on capital movement between Member States as well as between Member States and third countries are generally prohibited. Exceptions are only permitted in precisely defined cases, such as for the prevention of money laundering, tax evasion, or for reasons of public policy and security. EU legal scrutiny is strict; national restrictions must be proportionate and appropriate and may not go beyond what is necessary to achieve the objective. CJEU case law has further developed capital movement law in the context of economic and banking crises and provided clarifications on the handling of capital movement restrictions.
What is the legal significance of fundamental freedoms such as the freedom of establishment and the free movement of services for European economic policy?
The freedom of establishment (Arts. 49–55 TFEU) and the free movement of services (Arts. 56–62 TFEU) are central legal pillars of the European single market. They guarantee companies and individuals the right to conduct economic activities under equal conditions in any Member State. EU legislation harmonizes requirements to a great extent, for example through the Services Directive, banking directives, and capital market regulations. National restrictions are permitted only if they serve overriding requirements in the general interest, are suitable, and are proportionate. The CJEU reviews restrictions stringently and has with its Cassis de Dijon jurisprudence provided crucial impetus for economic integration.
What is the role of EU legal acts—particularly regulations and directives—in implementing economic policy measures?
EU regulations (Art. 288 TFEU) are of general application, are binding in all their parts, and are directly applicable in every Member State without the need for implementing measures. They are frequently used in competition law, financial market supervision, and budget law. Directives, on the other hand, are binding on the Member States as to the result to be achieved but leave them the choice of form and methods of implementation. Many economic policy measures, for example in labor law or environmental policy with economic relevance, are coordinated via directives. Non-implementation or incorrect implementation may lead to infringement proceedings, which may also be decided by the CJEU.
How is the monitoring function of the European Commission in the field of economic policy legally structured?
The European Commission performs a central monitoring and enforcement role, which is based on several legal texts. It verifies compliance with the economic policy requirements set out in the TFEU and in secondary legislation, such as adherence to budgetary rules, compliance with state aid regulations, or implementation of internal market provisions. In case of violations, the Commission can initiate infringement proceedings, issue opinions, or adopt binding decisions. It is also possible for the Commission to issue recommendations or warnings within the framework of the European Semester. Furthermore, the Commission is authorized to initiate emergency measures in the event of impending systemic risks and to regularly evaluate compliance with legal requirements.
