The co-ordination of the economic policies of Member States was envisaged as early as the Treaty of Rome (1957). Consequently, relevant committees were formally established and appropriate procedures developed (among others, medium-term economic programmes). The Werner Plan (1970), which postulated, among other suggestions, the ultimate establishment of a decision-making centre for economic policy and a Community system for the central banks and the consequent shift from co-ordination to implementation of a common (economic and/or monetary) policy, was also a landmark. Nevertheless, the results of co-ordination were unsatisfactory and it could be said that as late as the early nineties there was practically no co-ordination of economic policies within the Community in the full meaning of the word.

The turning point proved to be the implementation of the Maastricht Treaty (1993) whereby some basic provisions related to EMU and a single monetary policy in the euro area were put in place. This also required the implementation of relevant regulations regarding economic policy. However, unlike the monetary policy conducted at a supranational level, analogous regulations could not be introduced with respect to economic policy. Thus, its development rests with individual EU Member States.

The central element of the co-ordination of economic policies are the Broad Economic Policy Guidelines (BEPGs), formulated on an annual basis by the EU Council based on a proposal submitted by the European Commission. The BEPGs are politically, not legally, binding for Member States. It is a document consisting of two main parts: general economic policy guidelines for the Community and country-specific economic policy guidelines. It is of utmost importance to ensure supervision over the actual enforcement of the guidelines by individual states, under so-called multilateral surveillance. Additionally, the Commission prepares the Implementation Report annually. Once it is established that the economic policy of a given country is not in compliance with the BEPGs or constitutes a threat to EMU operations, the ECOFIN Council may send appropriate recommendations to such a country, and should these prove ineffective, makes its recommendations public. For the first, and so far, the only time, the Council - at the request of the Commission - sent a public recommendation to Ireland (in February 2001).

In the EU, the budgetary policies of Member States are also co-ordinated, and the key document in this area is the Stability and Growth Pact (1997). It is binding both politically and legally. The Pact imposes on the governments of Member States an obligation to avoid excessive deficit (over 3% of GDP) and maintain medium-term public finance at a level close to balance or in surplus (which involves the operation of so-called automatic stabilisers). Any violation of the Pact's provisions leads to severe sanctions being imposed on participating Member States. They are under the obligation to put in place non-interest-bearing deposits, and in some cases those can even be replaced with financial penalties (as high as 0.5% of GDP). The procedure of excessive deficit does provide, however, for certain circumstances that allow for less strict interpretation of the Pact's provisions (e.g. a severe economic downturn). The Pact obliges the euro area Member States to develop medium-term stability programmes, whereas those states operating outside the euro area are expected to prepare convergence programmes. These programmes should, among other activities, establish appropriate safety margins as well as take account of future budgetary burdens related to the so-called ageing of populations.

As so far, the recommendations resulting from the excessive deficit procedure have been sent by the EU Council to Portugal (November 2002) and Germany (January 2003), while France was given an early warning (also in January 2003).