The Member States signatories of the Treaty of Rome were not prepared to abandon their sovereign powers in economic or monetary matters in favour of the Community. Accordingly, the Treaty was confined to defining the objectives to be pursued in national economic policies, including full employment, a stable level of prices and currency and equilibrium of the balance of payments. Elaboration and implementation of economic policy as such, however, remained exclusively within the jurisdiction of the Member States.
The Treaty of Rome had considered it desirable that the Member States regard their economic policies as a matter of common concern. Article 103 stipulated that they should consult each other and the Commission on the measures to be taken in the light of the prevailing circumstances. Pursuant to that provision of the Treaty, the Council set up an Economic Policy Committee for Short-term Economic and Financial Policies [Decision 2000/604]. That Committee, which consists of one representative for each Member State and a Commission representative, has the task of preparing the meetings of the Economic and Financial Affairs (ECOFIN) Council. It is also responsible for the exchange, on a reciprocal and continuing basis, of information on decisions or measures envisaged by the Member States which could have a considerable effect on the economies of the other Member States or on the internal or external equilibrium of the Member State concerned or which could give rise to a considerable gap between the development of the economy of a country and the jointly defined medium-term objectives.
The Community's economic policy did not really get off the ground until the Member States decided to undertake the realisation of economic and monetary union [see section 7.2.1]. More than other common policies, the economic policy is indispensable to attainment of such union, as it constitutes one of its two wings. The task assigned to it by the Resolution of the Council and of the Representatives of the Governments of the Member States of 22 March 1971 on the realisation by stages of economic and monetary union was the convergence of the economies of the Member States, which was an extremely difficult task in view of the structural disparities between the economies which were to participate in that major undertaking before the completion of the single market. Nevertheless the lessons learned during this failed experience were useful for the formulation of an effective common economic policy.
The economy of the 27 member states of the EU generated, in 2007, an estimated nominal Gross Domestic Product (GDP) of EUR 12.2 trillion (US$ 16.6 trillion), accounting for 31% of the world's total economic output (USA = 27% of the total). The average GDP per capita of the 27 Member States of the EU, in 2007, was 24,600 euro. Two Member States - Italy and Spain - were close to this average. Eleven Member States - Luxembourg (69,900 EUR), Ireland (35,700 EUR), the Netherlands, Denmark, Austria, Belgium, Sweden, the United Kingdom (29,400 EUR), Finland, Germany and France (27,800 EUR) - had a GDP per capita above the average. Seven Member States - Cyprus, Greece, Slovenia, the Czech Republic, Malta, Portugal and Estonia - had a GDP per capita ranging from 90% to 73% of the EU average (22,900 to 17,900 EUR). Seven Member States - Poland, Slovakia, Hungary, Lithuania, Latvia, Romania and Bulgaria - had a GDP per capita ranging from 67% to 41% of the EU average (16,600 to 10,840 EUR).
The economies of most of these countries were seriously shaken by the global financial and economic crisis that unfolded since 2008 [see section 7.3.2]. To face this crisis, the European Union hurriedly took certain measures in order to preserve its young economic and monetary union: a European Economic Recovery Plan [see section 7.3.1], a European Financial Stabilisation Mechanism (EFSM) [Regulation 407/2010]; a European Financial Stability Facility (EFSF) [ see section 7.3.3]; and a European System of Financial Supervisors, which aims to ensure that the rules applicable to the financial sector are adequately implemented to preserve financial stability [see section 6.6]. The ESFS comprises: the European Systemic Risk Board (ESRB) [Regulation 1092/2010]; the European Banking Authority [Regulation 1093/2010]; the European Insurance and Occupational Pensions Authority [Regulation 1094/2010]; and the European Securities and Markets Authority [Regulation 1095/2010, amended by Directive 2011/61].
The Euro Summit of 26 October 2011 agreed a comprehensive set of measures to raise confidence in the banking sector by (i) facilitating access to term-funding through a coordinated approach at EU level and (ii) the increase in the capital position of banks to 9% of Core Tier 1 by the end of June 2012. The European Financial Stabilisation Mechanism (EFSM) and the European Financial Stability Facility (EFSF) will remain in force until June 2013, when they will be replaced by the European Stability Mechanism (ESM) [see section 7.3.3].
The ''Europe 2020'' strategy for the decade 2011-2020, proposed by the Commission on 3 March 2010 [COM/2010/2020] and adopted by the European Council on 26 March 2010, identifies five headline targets the European Union should pursue to boost growth and employment:
1. raise the employment rate of the population aged 20–64 from 69% in 2010 to at least 75% in 2020 [see section 13.3.2];
2. achieve the target of investing 3% of GDP in R&D in particular by improving the conditions for R&D investment by the private sector and by launching ''European Innovation Partnerships'' between the EU and national levels;
3. meet the "20/20/20" climate/energy targets, i.e. reduce greenhouse gas emissions by at least 20% compared to 1990 levels (or by 30% if there is international agreement), increase the share of renewable energy in final energy consumption to 20%, and achieve a 20% increase in energy efficiency [see section 16.3.4];
4. reduce the share of early school leavers from 15% in 2010 to 10% in 2020 and increase the share of the population aged 30–34 having completed tertiary education from 31% to at least 40%; and
5. reduce the number of Europeans living below national poverty lines by 25%, lifting 20 million people out of poverty.
The ''European semester'' is a six-month period every year during which the member states' budgetary and structural policies are reviewed to detect where the EU stands in relation to the five targets set in the Europe 2020 strategy as well as any inconsistencies and emerging imbalances. The key stages in the European semester are as follows. In January, the Commission issues an Annual Growth Survey, which sets out EU priorities for the coming year to boost growth and job creation. In March, EU Heads of State or Government issue EU guidance for national policies on the basis of the Annual Growth Survey. In April, Member States submit their plans for sound public finances (Stability or Convergence Programmes) and reforms and measures to make progress towards smart, sustainable and inclusive growth (National Reform Programmes). In June, the Commission assesses these programmes and provides country-specific recommendations as appropriate. The Council discusses and the European Council endorses the recommendations. Finally, in early July, the Council formally adopts the country-specific recommendations.
At the Euro area summit, on 29 June, 2012, heads of state or government of the 17 Member States decided: to establish a single banking supervisory mechanism run the by the European Central Bank; and once this mechanism has been created; to provide the European Stability Mechanism (ESM) with the possibility to inject funds into banks directly, i.e. without intervention of governments and, hence, without charge of the budgets of the Member States. It was also agreed that EFSF/ESM funds can be used flexibly to buy bonds for Member States that respect: (a) their country-specific recommendations; and (b) other commitments, including timelines under the European Semester, Stability and Growth Pact, and the Macroeconomic Imbalances Procedure.