Article | Last updated: 18/03/2015 | Ministry of Foreign Affairs
Neither the coordination of EU economic and monetary policy nor its currency cooperation (the euro) is part of the EEA Agreement. However, through its trade with EU countries and its participation in the internal market, Norway is affected by developments in the EU. Moreover, the financial services sector is an important part of the internal market, in which Norway participates.
Cooperation within the EU and in Europe as a whole, and developments in this context, are significant for Norway, as our economy is closely intertwined with the economies of the other European countries. Through the EEA Agreement, Norway is part of the EU internal market, and two-thirds of Norway’s trade is with EU countries. Norway is the EU’s fifth largest trading partner.
EU cooperation on economic policy
EU cooperation on economic policy includes both macroeconomic and structural policy. Coordination of economic policy has been an important item on the EU agenda ever since European cooperation was first established in 1957. In order to gain the full benefit of political and economic integration, a common market was created for goods, services, capital and persons. A common currency was also identified as an important means of increasing integration and ensuring an effective internal market. Since 1 January 1999, the countries participating in the euro cooperation have had a common currency and a single monetary policy governed by the European Central Bank (ECB). Euro notes and coins were introduced on 1 January 2002. To join the eurozone, countries have to meet specific requirements, for example regarding public debt and budget deficit levels, and inflation rate (the Maastricht criteria). To date 17 countries have adopted the euro. The introduction of a common currency has also made it necessary to coordinate economic policy more closely in the eurozone. This takes place in the Eurogroup, where finance ministers from the countries in the eurozone discuss issues of importance for the Economic and Monetary Union (EMU).
The Stability and Growth Pact is the main tool for monitoring and coordinating member countries’ economic policy, and is designed to promote robust public finances and stable economic development in the eurozone. Countries with a budget deficit of more than 3 % of gross domestic product (GDP) are required to implement an individually tailored Excessive Deficit Procedure to reduce their deficit to an acceptable level. If this is not done by the deadline, sanctions may be imposed. Countries may also be required to implement a procedure based on an assessment of their public debt level (the Macroeconomic Imbalance Procedure).
When the economic crisis started to develop in 2008, the EU saw the need for closer coordination between the member countries, particularly on budget consolidation and steps to curb debt levels. Now, countries in the eurozone must submit draft budget plans for the coming year to the European Commission, which makes recommendations as needed. This process is called the European Semester. Legislation has been adopted to strengthen compliance with the Stability and Growth Pact, increase fiscal discipline, and ensure closer follow up of macroeconomic imbalances.
In 2010, in response to the turmoil caused by heavy public debt in several eurozone countries, the EU established temporary mechanisms for financial support to countries in the eurozone with payment problems. In July 1012, a permanent crisis resolution mechanism (the European Stability Mechanism) was established.
In March 2012, twenty-five of the EU countries signed an agreement on more stringent budget requirements and closer monitoring of their economies, known as the fiscal compact. It is expected that a sufficient number of countries will have ratified the agreement by the summer of 2012, so that it can be implemented.
Norway’s participation and cooperation
Norway does not participate in the EU’s macroeconomic policy coordination, but through our participation in the internal market and our considerable trade with EU countries, we are nevertheless affected by EU policy and developments in this area. A policy that promotes stability, and thus high levels of growth and employment, is of great significance for Norway. The Norwegian authorities have regular meetings with representatives from the EU member countries and the European Commission on economic and monetary policy matters, at both political and senior official levels.
EU policy and cooperation on financial services
Financial services are an important sector within the internal market. The introduction of the euro in 1999 has strengthened integration and competition in the European financial markets. An internal market is not possible without a well-functioning internal market for financial services. Important matters in this area at present include amending the legislation on capital requirements for banks and credit rating agencies, responsible lending and access to bank services, as well as several matters relating to the market infrastructure in this area.
Instability in the financial markets rose to the top of the EU agenda after the financial crisis erupted in 2008. The European Commission initiated a major revision of the legislation on financial services and identified problems due to unstable and inadequate supervision of the financial sector, a lack of transparency in many types of financial transactions and irresponsible risk-taking by European financial institutions. It was decided that the system of financial supervision needed to be strengthened and reformed, and with this in view, three new supervisory authorities – for supervising individual institutions in the banking, insurance and pensions, and securities sectors – started work on 1 January 2011. Day-to-day supervision will continue to be a national responsibility, but the new authorities have broader mandates that include developing technical standards and mediating if disagreement should arise between two or more national authorities. The European Systemic Risk Board was established at the same time to monitor and assess risks to the stability of the financial system as a whole, and to identify bubbles and other destabilising factors.
Association with the EU through the EEA Agreement
Norway has been part of the internal market for financial services since the EEA Agreement came into force in 1994. This means that Norway regularly implements legislation developed in the EU system. The Ministry of Finance, Norges Bank and the Financial Supervisory Authority of Norway take part in working groups and expert groups under the European Commission that are developing legislation to regulate financial services. Norway has the right to speak and present proposals, but not to vote, in the committees on securities, banking and insurance. The legislation that established the three new supervisory authorities and the European Systemic Risk Board has not yet been incorporated into the EEA Agreement.
- The Ministry of Finance chairs the special committee on the movement of capital and financial services, in which other ministries also take part.
- The EFTA working group on financial services ensures that all EEA-relevant EU legislation in the fields of banking, insurance and securities is incorporated into the EEA Agreement, and closely monitors the preparatory work of the European Commission in this area. Representatives from the Ministry of Finance, the Financial Supervisory Authority of Norway and Norges Bank take part in the working group, which also has meetings with the European Commission.