scholarly journals Steps towards a European Fiscal Union: Has the revised Stability and Growth Pact delivered so far?

2021 ◽  
Vol 17 (3) ◽  
Author(s):  
Marin Mileusnic
Keyword(s):  
Monetary Union ◽  
Fiscal Rules ◽  
Solid Base ◽  
Stability And Growth Pact ◽  
The European Union ◽  
Member States ◽  
Fiscal Union ◽  
Evaluation Approach ◽  
Growth Pact ◽  
Dynamic Panels

Since 2008-09, the European Union (EU) experienced two major economic crises revealing all the flaws of the existing model of economic governance. By leaving the majority of the countries with high levels of deficit and public debt, the two crises have shown that the Economic and Monetary Union (EMU) is indeed an unfinished project where the monetary union alone is not sufficient to safeguard the entire EU economy. To strengthen the EMU and to mitigate future risks that could possibly lead to the collapse of the euro-area, many called for a deeper fiscal integration by creating a central fiscal capacity for the EMU or, in other words, a fiscal union. Due to the present political unfeasibility of such an endeavour, however, concrete steps towards a European Fiscal Union (EFU) have been modest and the revised Stability and Growth Pact (SGP) remains its core building block. As the Pact defines supranational and shapes the creation of national fiscal rules, maintaining its credibility continues to be vital. This article analyses the effects of the fiscal rules on the public finances of the member states. It is assumed that by adhering to the supranational and adopting quality domestic fiscal rules, the member states are better equipped in remaining fiscally prudent, thus also affirming the revamped SGP as a solid base for the furthering of the EFU. The two-track evaluation approach defines dynamic panels for the EFU as a whole and for the selected country groups. It finds certain benevolent effects on budgetary performance at the EFU level, as well as for the countries with higher quality of the fiscal rules.

scholarly journals European Union’s Fiscal Rules and New Financial Instruments for 2021- 2017: Bulgaria’s Case Study

2021 ◽  
Vol 1 (1) ◽  
pp. 26-35
Keyword(s):  
European Commission ◽  
Fiscal Rules ◽  
Financial Instruments ◽  
The European Union ◽  
Economic Cycle ◽  
Member States ◽  
Growth Pact ◽  
The Stability ◽  
The Eu

Fiscal policymaking of the Member States aims to follow fiscal rules through the economic cycle that ensure macroeconomic sustainability in the European Union (EU). After the 2008 global crisis, the Stability and Growth Pact introduced the enhanced supranational fiscal rules, setting additional boundaries to fiscal deficits and government debt. The new ceiling on the structural deficit in public finance laws of Member States has served to protect creditworthiness. The COVID-19 pandemic, which led to a temporary suspension of the fiscal rules, clearly indicates that the key challenges are to implement a countercyclical policy during upturns, building buffers for bad days. Under the Next Generation Europe’s initiative the European Commission (EC) will borrow up to €750 billion and distribute it over 2021-2024 to Member States (European Commission, 2020a). Raising funds in the EU budget and repayment of the EC debt may lead to amendments to the design and application of the EU fiscal rules. This paper lays out the objectives of the EU current fiscal framework and its main pillars, discusses how the EC new financial instruments for the period 2021-2027 will be accounted for in the Member States’ fiscal framework, and what are its possible changes and challenges after Covid-19 and Brexit.

Institutionelle Alternativen in der Europäischen Union: Das Beispiel des Stabilitäts- und Wachstumspaktes

2006 ◽  
Vol 55 (2) ◽  
Author(s):  
Renate Ohr ◽  
André Schmidt
Keyword(s):  
Monetary Union ◽  
European Monetary Union ◽  
Allocative Efficiency ◽  
Stability And Growth Pact ◽  
European Monetary ◽  
Fiscal Deficits ◽  
Member States ◽  
Growth Pact ◽  
The Stability

AbstractThe Stability and Growth Pact is one of the constituent pillars of the European Monetary Union. Though, meanwhile it is obvious that it will not be able to limit fiscal deficits of the member states. For this reason in this paper Coase′s thinking in institutional alternatives is applied to find a better way to increase the incentives for more fiscal stability. We present and discuss tradable deficit permits comprising market-orientated incentives for fiscal stability. It is shown that tradable deficit permits are superior from a politico-economical view as well as with regard to allocative efficiency.

scholarly journals The European Union fiscal policy framework and fiscal sustainability: challenges for the post-crisis environment

2021 ◽  
Vol 33 (2) ◽  
pp. 67-82
Author(s):  
Urszula Kosterna
Keyword(s):  
European Union ◽  
Fiscal Policy ◽  
Reference Values ◽  
Public Debt ◽  
Policy Framework ◽  
Stability And Growth Pact ◽  
The European Union ◽  
Member States ◽  
Growth Pact ◽  
The Eu

The fiscal policy framework in the European Union was originally agreed upon in the Maastricht Treaty 30 years ago. In the following years it has been supplemented (Stability and Growth Pact) and modified, influenced by the experience of its application practice and external shocks, such as the financial crisis. However, the essence of this framework remained the same - member states are obliged to conduct a disciplined fiscal policy, which, in a nutshell, is assessed by comparing the ratio of budget deficit and public debt to GDP in a given country to the reference values. Even before the outbreak of the Covid-19 pandemic, the need to change the mechanisms for disciplining fiscal policy was widely recognized. High and persistent levels of public debt, pro-cyclicality of fiscal policy, shortage of public investment and the complexity of fiscal rules and their weak enforceability are indicated as unfavorable features of public finance. In 2019 the COVID-19 pandemic came as the biggest shock to the world community since World War II. In the context of the provisions on fiscal discipline, in May 2020 the Commission and the Council activated the general escape clause of Stability and Growth Pact, for the first time ever. This has allowed member states to take the necessary fiscal measures to deal with the crisis. On 19 October 2021, the European Commission adopted a Communication relaunching the public consultation, put on hold in March 2020, on the EU?s economic governance framework. The new governance framework should be tailored to the challenges the EU is facing, including the challenge of achieving a fiscal stance that is appropriate for the euro area as a whole.  There is a fairly widespread belief in the need to move away from rigid reference values, which should be replaced by solutions that ensure the sustainability of public debt in the differing circumstances of member states. The proposed options for the revision of the EU fiscal framework, although justified in theory, have a fundamental flaw - they strengthen the position of supranational institutions and, moreover, open the door to discretion and potentially unequal treatment of member states. These proposals can be seen in a broader context - the federalization of the EU, which would limit the sovereignty of nation states.

scholarly journals Effectiveness of Fiscal Policy Coordination Rules in the Monetary Union

Equilibrium ◽  
2012 ◽  
Vol 7 (3) ◽  
pp. 73-91
Author(s):  
Bernadeta Baran
Keyword(s):  
Fiscal Policy ◽  
Monetary Union ◽  
Policy Coordination ◽  
Economic And Monetary Union ◽  
Fiscal Policies ◽  
Stability And Growth Pact ◽  
Common Currency ◽  
Member States ◽  
Rule Based ◽  
Growth Pact

Stability and Growth Pact is the main rule-based framework for the coordination of national fiscal policies in the economic and monetary union (EMU). It was established to safeguard sound public finances, an important requirement for EMU to function properly. Member states had a lot of determination before setting up a monetary union (nominal criteria were a condition to adopt common currency). In the next years, coordination of fiscal policy was not so successful. In many countries, revenues were temporarily boosted by tax-rich activity, while they didn’t restrict their expenditures. In most countries fiscal policy was pro-cyclical (not anti-cyclical) and they didn’t achieve their MTO. Financial crisis has sharpened budgetary problems in member states and showed the weakness of coordination rules.

Braucht die EU einen flexibleren Stabilitätspakt?

2004 ◽  
Vol 53 (1) ◽  
Author(s):  
Carsten Hefeker ◽  
Friedrich Heinemann ◽  
Klaus F. Zimmermann
Keyword(s):  
Public Awareness ◽  
Time Lag ◽  
Fiscal Rules ◽  
External Control ◽  
Public Expenditures ◽  
Stability And Growth Pact ◽  
Consolidation Process ◽  
Growth Pact ◽  
Long Run ◽  
The Stability

AbstractIn his contribution Carsten Hefeker points out that most of the official arguments concerning the necessity of the Stability and Growth Pact are not convincing. Nevertheless, a mechanism that credibly avoids excessive debts and deficits is needed in most member states. It would be more useful, however, if such rules would focus on overall debt rather than on deficits. In addition, he advocates to create an external control for such fiscal rules, independent from the Commission and ECOFIN. He concludes that the Pact does not need to become more flexible, but more credible.Friedrich Heinemann states that much of the recent reform debate on the Stability Pact is based on a fundamental misconception: The Pact has not been established as a guiding tool for welfare - maximising politicians, but in order to limit detrimental incentives from fiscal short-sightedness. “Stupid” elements like the three-per-cent deficit ceiling have a clear and beneficial strategic function as boundary within the national budgetary process. Furthermore, simple rules are superior to smart ones in increasing the political costs of high deficits in terms of public awareness. The critique on the pact′s missing flexibility is correct mainly regarding its lose logical link to long-run sustainability. Increasing flexibility in a cyclical sense, however, is not a reform priority. Already today the Pact leaves sufficient leeway for responsible politicians. Instead, the reform focus must be on depoliticising the pact in the sense of limiting Council power in the deficit procedure. More flexibility must not come without depoliticising. He recommends that any reform should only be carried into effect with a significant time lag in order to limit the reputation damage which would be the consequence of any quick institutional response to the Pact′s recent crisis.In his paper Klaus F. Zimmermann argues that the Stability and Growth Pact (SGP) has been subject to criticism ever since its inception. He points out that it overlooks business cycle developments within the framework of the consolidation process; it adopts a too short-term view of the stabilisation target which is also hardly under control of policy-makers; and it deals with policy imperfections in a sub-optimal way. Therefore, a reform of the SGP is urgent. The author suggests that the rules must be handled more flexibly. In his opinion, a mediumterm budgetary target and a focus on public expenditures to tackle the pro-cyclical bias is needed. To restore credibility, the task of supervision should be transferred to an independent European institution.

THE EUROPEAN UNION AND ITALY RELATIONS IN THE CONTEXT OF SUPRANATIONAL FISCAL REGULATION

2021 ◽  
pp. 208-221
Author(s):  
Dmitrii О. Mikhalev ◽  
◽  
Egor’ A. Sergeev ◽  
Keyword(s):  
European Union ◽  
Budget Deficit ◽  
Stability And Growth Pact ◽  
The European Union ◽  
Internal Factors ◽  
Growth Pact ◽  
Discretionary Fiscal Policy ◽  
The Government ◽  
The Stability ◽  
The Eu

The article presents a retrospective analysis of relations between the government of Italy and the European Union institutions in the context of supranational fiscal regulation in 2002–2019. The authors analyze the influence of external and internal factors on the state of public finance in Italy, note the reasons that made it difficult to meet the requirements of the Stability and Growth Pact, study the main issues on the agenda in the EU-Italy relations and their evolution. The authors also come to conclusion that unlike the earlier discussions about correcting budget deficit in Italy, current focus of supranational fiscal governance is shifted to preventing it, what challenges the economic sovereignty of Italy and country’s opportunities to conduct a discretionary fiscal policy.

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