It Is Broken. Can It Be Fixed? A Look at the European Union's ...

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• There should be clear parameters for each Member State’s fiscal policy against which its record can be judged. • There need to be channels through which national finance ministers can be held to account when they make (or break) such commitments. • There should be a political price to pay for Member States that breach agreed policies without good, economically defensible, reasons. There are obvious concerns with the effectiveness of Begg and Schelkle’s proposed Eurogroup holding its finance ministers accountable. Their response is that Explicit political sanctions at the EU level, such as losing the right to vote on euro matters in Ecofin, might help to reinforce these commitments, but the main sanction should be expected from the perception of failure in domestic politics (Begg and Schelkle, 2005, p. 1055). In examining the behavior of larger member states compared to that of smaller member states, Buti and Pench agreed with Fatas, von Hagen, Hallett, Strauch, and Sibert in calling for greater flexibility. However, they were equally as concerned as to the negative results of greater flexibility without the ability to enforce the SGP. For any reform of the Pact to be credible, Member States, especially the larger ones, need to exhibit greater willingness to subordinate short-term political gains to the long-term common good of protecting the monetary union from the risk of financial unsustainability. A powerful signal in this direction would be for the Member States against which an EDP is being initiated, to agree to abstain from voting at any step of the procedure concerning any Member State. A self-denying ordinance of this kind, 18
especially on the part of the largest Member States, would speak louder than a thousand Council communiqués on the Pact (Buti and Pench, 2005, p. 1032). The EU Responds Nearly two years after issuing its Strengthening the Coordination of Budgetary Policies, the European Commission, on September 3, 2004, issued its updated proposals to improve the SGP. The main points of the Commission’s proposals were: • Current limits on public deficit and public debt would remain unchanged, but more emphasis would be placed on public debt and the viability of public finances in the medium and long-term, taking into account retirement financing and growth potential. • Greater allowance would be made for country-specific circumstances in defining the medium-term objectives of close to balance or in surplus budgets. The higher the debt level, the stricter the medium-term budget objective. • Consideration would be given to economic circumstances and developments in the implementation of the EDP, used to prelude sanction in the case of a deficit in excess of the 3 percent of GDP reference value. • Countries that experience prolonged periods of weak growth could invoke an exceptional circumstances clause to avoid an EDP, whereas currently this clause applies only to instances of negative growth, or recession. • An extended EDP would allow more time between the different stages to tailor the procedure to each country. Such an approach would avoid the pitfalls of overly strict adjustments. • Budgetary surveillance should ensure the achievement of surpluses in good times to create sufficient room for dealing with economic slowdowns. 19
Page 1 and 2: Submission Form Author’s Name: Af
Page 3 and 4: • Budgetary discipline: a governm
Page 5 and 6: (9) If a Member State persists in f
Page 7 and 8: • Dissuasive elements which in th
Page 9 and 10: is so strong that the British don
Page 11 and 12: hand, its rules are not strict enou
Page 13 and 14: states’ revenue failed to grow at
Page 15 and 16: • Debt rules. The argument here i
Page 17: with a subsequent report to the Eur
Page 21 and 22: • Take better account in Council
Page 25 and 26: References Begg, I. and Schelkle, W
Page 27: Martin, A. (2005). Blame the ECB, N

It Is Broken. Can It Be Fixed? A Look at the European Union's ...

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