What is the role of economic governance in the enlargement process?
Economic governance has become one of the pillars of EU’s enlargement policy, mirroring developments within the EU to strengthen economic policy under the European Semester. A new approach has been developed to help the enlargement partners[1] strengthen macroeconomic stability, boost growth and meet the economic criteria for accession.
What are the Economic Reform Programmes?
As a result, as of 2015, all candidate countries and potential candidates submit annual Economic Reform Programmes (ERPs). These programmes contain medium-term macroeconomic projections (including for GDP growth, inflation, trade balance and capital flows), budgetary plans for the next three years and a structural reform agenda. The structural reform agenda includes reforms to boost competitiveness and improve conditions for growth and job creation.
State of play and next steps
In 2016, all enlargement countries have submitted their second annual Economic Reform Programmes covering the period 2016-2018. They have been assessed by the European Commission and the European Central Bank. Based on these assessments, Joint Conclusions with country-specific policy guidance were agreed and adopted by all seven enlargement partners and the EU at ministerial level on 25 May. The implementation of the reforms outlined in the programmes, and in particular of the recommendations agreed upon in the dialogue with the EU, will be reviewed in next year’s ERP exercise.
Country-specific recommendations
The policy recommendations agreed for Montenegro include the reduction of the public deficit and debt, and the need to support the development of local enterprises, by developing the market of consultancy services and improving the capacity of banks to increase lending (in particular through resolving bad loans). There was also a common agreement to continue with the full opening of rail and energy markets. Because of the still high unemployment in the country, Montenegro agreed to adopt measures that will encourage people to enter the labour market and to develop skills needed by local enterprises.
The policy recommendations to Serbia focus on the need to reduce the budget deficit and encourage the sources of economic growth. There was agreement on a number of horizontal reforms, such as public administration reform and the restructuring of state-owned enterprises, in particular large utilities. Serbia also agreed to promote private sector development by simplifying regulations, controlling para-fiscal charges, improving the tax policy in a business friendly way and implementing the action plan to resolve bad loans of banks so that they can lend to local enterprises. There was also agreement to ensure that public investments can be implemented swiftly and efficiently. Serbia agreed to step up the provision of support to unemployed people and facilitate the reintegration of workers made redundant by public sector restructuring.
The former Yugoslav Republic of Macedonia agreed to increase budget transparency, strengthen budget planning capacities and to adopt a public financial management reform programme. There was agreement to ensure that public investments can be better prioritised in a transparent process and implemented swiftly and efficiently. To help financial stability, the authorities will develop strategies for resolving bad loans and encourage the use of the local currency in financial transactions. The government agreed to be more transparent and regular when adopting legislation and to strengthen the independence of commercial courts. Finally, the government agreed to adopt measures that will encourage people to enter the labour market and to further strengthen the Employment Service Agency.
Albania committed to continue reducing its budget deficit and to strengthen its capacity to manage its public finances through adoption of specific rules and better budget planning. Risks to the budget coming from public-private partnerships will also be evaluated. The authorities agreed to follow up on the action plan to resolve bad loans and to step up efforts to encourage the use of the local currency in the financial system. Albania agreed to fully separate transmission and distribution activities in the electricity and gas sectors, improve land registration, including the full functioning of the cadastre, and introduce an electronic procedure for building permits. Albania also undertook to adopt measures that will encourage people to enter the labour market and to tackle undeclared work in a comprehensive manner.
The policy recommendations for Bosnia and Herzegovina include increasing public investment, containing spending on public employment, improving the targeting of social assistance and strengthening the capacity to manage public debt. The authorities committed themselves to improve statistical reporting, develop a comprehensive strategy for resolving bad loans of banks and strengthen the financial system. Bosnia and Herzegovina agreed to set up a common economic space in the country and to coordinate better between the state government and entities governments. The government also agreed to adopt country-wide strategies for transport and energy, to strengthen the employment services, to adopt measures that will encourage people to enter the labour market and to develop skills needed by local enterprises.
Kosovo agreed to strengthen their economic planning and to take steps towards establishing an independent review mechanism for fiscal policy. Kosovo also agreed to decrease the fiscal deficit while ensuring that public investments are maintained and implemented, and to address the underlying causes for the high interest rate on bank loans. The authorities committed themselves to implement the action plan to reduce the informal economy, as well as to increase energy security by encouraging households to increase their energy efficiency and by preparing a plan for gradually increasing energy tariffs to reflect actual costs. Kosovo agreed to set up an action plan for tackling youth unemployment, to improve teacher training, to improve female labour market participation and to strengthen the Employment Agency.
The policy recommendations invite Turkey to promote domestic savings, also by decreasing the budget deficit. Monetary policy, including interest rates, should be tightened to bring down the high inflation, and the rules governing monetary policy should be simplified to increase transparency and the credibility of inflation targeting. In the area of structural reforms, the authorities committed to take steps to strengthen the rule of law and the judiciary to help restore investors’ confidence, to boost research and development, and to fight undeclared work. They also agreed to work on the improvement of the qualifications of workers.
[1] Candidate countries: Albania, the former Yugoslav Republic of Macedonia, Montenegro, Serbia and Turkey; potential candidates: Bosnia and Herzegovina and Kosovo.
