The recent reform of the European economic governance has helped to foster the perception that Europe is impinging on the sphere of national sovereignty. It is certainly true that member states have established a framework of common action at the European level in an effort to ensure the stability of the common monetary area in which a supranational monetary policy exists side by side with budgetary and economic policies based on the nation state. Yet apart from the countries benefiting from an aid programme, the countries in the euro area remain free to pursue their own national preferences.

This Policy paper sets out to clarify the powers held by the European institutions in connection with the conduct of national fiscal, economic and social policies. It presents four points:

1. The new status of “countries benefiting from aid programmes” fuels the image of a Europe governing its member states, yet such a situation is limited in both time and space;

2. The fiscal discipline required of member states translates into an obligation to achieve a result (avoiding public deficits) but it does not impose obligations on member states concerning the means by which that result is achieved;

3. The new macro-economic surveillance procedure does not allow the European institutions to dictate their economic and social choices to member states;

4. The coordination of member states’ economic and social policies rests on political incentive, and recommending is not the same things as ordering.