The terrorattack hit the western world in a situation of a sharp cyclical downturn in the USA, Europe and Japan. Mainly because of increased uncertainty the downturn will be intensified by the attack. Immediately after the attack US monetary and fiscal policy became even more expansive. In Europe monetary policy reacted very reluctantly. Active fiscal policy in the Euro-area is nearly not existing as the Stability and Growth Pact as well as neo-liberal ideology prevents fiscal measures. The inactive economic policy in the Euro-area is not only dangerous for Europe but also a depressing factor for the world economy.
This chapter sets the scene for this study by providing historical context and introducing the key aspects, processes, and players of fiscal policy coordination. In so doing it charts key developments of pre-crisis fiscal policy coordination, before turning to the creation of the European crisis agreement, the European Economic Recovery Plan (EERP), and finally the reform packages post-crisis. Despite impressions to the contrary, the procedures for fiscal policy coordination are extensive, albeit enforced and reinforced with little political and legal power. Although there is persistent continuity for some ideas and procedures—the Stability and Growth Pact (SGP) and its fear of stability free riding chief among them—new innovations and reforms have made inroads.
Abstract Brunila, A. - Buti, M. - Franco, D. (eds), 2001, The Stability and Growth Pact: The Architecture of Fiscal Policy in EMU, New York, Palgrave, pp. 438, hardcover, ISBN<italic/> 0-333-96145-5, US$69.95.
As explained in the previous chapter, the Maastricht Treaty put in place a mild system of coordination in the area of economic policy, in particular fiscal policy. The Member States keep conducting their fiscal policy, particularly the adoption of budgets and the exercise of taxation power which are at the core of the sovereignty of the states. The Member States thus remain largely sovereign with regard to the conduct of their budgetary policies given that their annual budget, as well as their longer-term fiscal planning are still decided by the national authorities. The Union has no competence to interfere directly in this area acting in place of the national authorities. Notably, no veto right is provided, and the Union could not somehow prevent the adoption of national budgets.
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