POLICY CHALLENGE The European Semester cannot be effective if it is not legitimate. Legitimacy ultimately comes from national parliaments that vote on budgets and on financial, labour and product market reforms, but national parliaments are insufficiently involved. There are three options that could reduce the tension between the EU level and the national level over the legitimacy of the European Semester, while increasing its effectiveness: (i) Brussels goes to capitals: the direct presence of

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... European institutions in national parliaments and the European Parliament acting as a watchdog; (ii) Capitals go to Brussels: greater presence of national parliaments at European level; (iii) a new treaty creating a soft political union with some fiscal capacity and a real shift in decision-making authority to the EU. Increasing effectiveness and legitimacy THE ISSUE For markets, European economic governance faces a crisis of policy effectiveness, while for citizens the European Union faces a democratic legitimacy crisis. The introduction of the European Semester economic policy surveillance system has not resolved these problems. Policy guidance deriving from the Semester is not focused enough on areas of significant spillovers and on problem countries, and national compliance is often procedural rather than actual. This brings into question both the Semester's effectiveness and the democratic legitimacy of the EU's new intervention rights, which allow intrusion into national policy-making. Source: Bruegel.