 |
25/10/2010 |
European governance: pushing for increased fiscal discipline and competitiveness
By Christian Scheinert, Adviser on the Economic and Monetary Affairs Committee
This week will see the first exchange of views on the European Governance Package in the
Economic and Monetary Affairs Committee in Parliament. This is widely considered to be one of the most important dossiers of this legislative term. It will have a deep impact on the economic and fiscal policies of the EU.
'European governance' is a term that has not been clearly defined. The term oscillates between European [economic] government, which is understood to be a central institution taking over a number of economic policy topics and tasks now carried out at Member-State level on the one hand, and the general, rather vague framework of decision-making in the field of economics at the European level on the other hand. The
Lisbon Treaty does not provide for the former definition, so it is prudent to stick with the latter. However, the Treaty's shows a much stronger will to consider the economic policies of the Member States as being of common interest and to act accordingly. This new approach hasn't been translated into reality yet.
The eurozone
Recent events in Ireland and Portugal have shown that economic and fiscal policies in the Member States that have adopted the euro need a higher degree of surveillance and coordination. The assumptions that there would both be economic convergence within the eurozone and a prudent approach to budgetary policy in all Member States proved to be wrong.
Wages that increased much faster than productivity led to balance-of-payment problems in a number of Member States whose international competitiveness eroded continuously. The adoption of a
common currency makes it impossible to hide a lack of competitiveness through
devaluating the currency. The only escape left within a monetary union is to adapt wages. This is not what happened. In a number of Member States wages went up dramatically whilst productivity didn't. This led to balance-of-payments problems, first and foremost in Greece.
The second assumption, one concerning prudent budgetary policy, was based on the belief that the
Stability and Growth Pact would be sufficient to avoid major strains on the common currency. It proved not to be so. A lenient approach to the deficits accumulated in France and Germany paved the way to an ill-fated
reform of the Pact in 2005. Again it was Greece which was first to run into deep trouble when the issuance of
government bonds at moderate interest rates became impossible.
There was a threat that these events occurring in one country would endanger the eurozone as a whole, possibly even creating a domino effect. This is when a decision was taken to create a number of ad-hoc mechanisms, first to provide the Greek government with affordable loans, then to prepare for coping with balance-of-payments problems, should these occur. None of these
mechanisms were planned as long-term; they are provisional ones. Also, their compatibility with the Treaty's arrangements and spirit is still a somewhat open question.
Task Force
Earlier this year the
European Council put a
Task Force chaired by its
President Van Rompuy in place in order to make proposals in the field of European governance. It foresees the strengthening of the Stability and Growth Pact, whose preventive arm should be improved, and the potential introduction of sanctions. The Task Force is looking at ways to increase the cost of non-compliance with the rules through a system of 'intelligent sanctions'. Furthermore, the Task Force is in favour of the establishment of a '
European semester', during which finance ministers would discuss the sustainability of their budget, with a special focus on the evolution of public debt.
Indeed, on 7 September 2010 the Council
endorsed changes to the manner in which the EU's Stability and Growth Pact is implemented in order to allow for such a 'European semester' to be introduced as part of a reform of EU provisions on economic policy coordination.
The Task Force intends to differentiate between Euro and non-Euro Member States, as well as between non-Euro Member states with an opt-out clause and those which will become part of the eurozone.
What happens now?
An increase in competitiveness would be the centre-piece of improved
macro-economic surveillance, which would focus on those imbalances that threaten economic growth. A key element that will be scrutinized is public wages, including their spill-over effects on wages in the private sector. (This should be read carefully: it doesn't mean that those countries that are internationally competitive should be prevented from performing, but that those which are not competitive should be encouraged to become so.) An important structural reform that will have to be carried out in several Member States concerns the labour market. Further support to increasing the competitiveness will stem from the
EU 2020 strategy.
On 29 September 2010 the European Commission made six legislative proposals concerning economic governance. These are:
Work in Parliament starts this week, with the first two of these six dossiers being allocated to EPP Group Rapporteurs
Corien Wortmann-Kool and
Diogo Feio. The EPP Group will be pushing for greater fiscal discipline and reforms aimed at increasing competitiveness.
Regardez l'actu
