Economic policy

Economic reforms in the goods, capital and labour markets which remove barriers to competition and increase market flexibility are essential for the smooth functioning of the Economic and Monetary Union (EMU). Such reforms are key to raising productivity and employment in the euro area, thereby supporting the growth potential of the euro area in the long run. At the same time, such reforms will contribute to lowering price pressures by enhancing competition and fostering innovation. By making the euro area markets more flexible, they also help countries to adapt faster and at lower cost to economic shocks. The case for structural economic reforms is very strong in a monetary union, such as the euro area, since there are no longer national monetary and exchange rate policies to respond to country-specific shocks and to improve competitiveness. The economic reform agenda for Europe has been laid down in the so-called Lisbon Strategy for Growth and Jobs. In this context, the EU Heads of State or Government (European Council) launched a wide-ranging and ambitious programme of economic, social and environmental reforms in March 2000 covering policies at both the national and the EU level to enhance the standard of living of European citizens. To achieve this goal, the Lisbon Strategy aimed to transform the European Union into a highly competitive and knowledge-based economy while maintaining a high degree of social cohesion and environmental sustainability. As the results obtained in the first five years of implementation were rather mixed, partly due to a lack of clear focus, the Lisbon Strategy was relaunched in March 2005. While acknowledging the continuing relevance of the social and environmental pillars, the European Council streamlined the governance framework (see below) and refocused the strategy on ‘growth and jobs’ by identifying four main priority areas: The institutional framework for implementing the Lisbon Strategy consists mainly of two processes spelled out in Articles 121 and 148 of the Treaty on the Functioning of the European Union (TFEU). These pertain to the EU Council of Ministers' adoption of Broad Economic Policy Guidelines (BEPGs) and Employment Guidelines (EGs) , which are proposed by the European Commission and cover macroeconomic, microeconomic and employment policies. In order to improve the consistency of the BEPGs and EGs, and to focus on the implementation of structural reforms, the 2005 reform of the Lisbon Strategy brought the two sets of guidelines together under the single heading of the Integrated Guidelines . The guidelines are endorsed for a three-year period (see below for details). The first three-year period was 2005-07. The second three-year period is 2008-10. On the basis of the Integrated Guidelines, each EU Member State draws up its National Reform Programme describing key priorities for economic reforms, planned reforms and own targets in a single document. National parliaments, social partners and civil society are invited to participate in the formulation of the programme. This is intended to improve the national ownership of the structural reform agenda of each Member State. As a complement to the National Reform Programmes, the Commission presents a Community Lisbon Programme covering all actions to be undertaken at the Community level. The implementation of the Community Lisbon Programme largely entails the adoption of Community legislation by the EU Council and European Parliament, on the basis of proposals by the Commission. The Heads of State or Government hold a Spring European Council every year in order to provide political impetus and direction to the strategy. In March 2008, a new policy cycle started. The general set-up is always the same: each cycle begins with a strategic report by the Commission which puts forward the priorities of EU economic policy for the ensuing three years. The report is accompanied by a proposal for a set of Integrated Guidelines which is adopte