Authors Iain Begg | Gabriel Glöckler | Anke Hassel ... - The Europaeum

signals are in place to promote a new wave of low-carbon investment. The
era and rhetoric of tax competition may well be at an end. But there will
be inevitable rows and tensions between different views of how all this
should be done, laced naturally enough with vested national interests.
The ratification of the Lisbon Treaty is likely to result in greater
formalisation of the Eurogroup, but with what consequences for policy is
unclear. At present, however, there is no sign that the crisis will result in
a centralisation of fiscal authority. The French and Germans have shown
little interest in such a move up to now. But the EU needs to establish a
new consensus on what should be the sound principles of public finance
for the period ahead. To say that there is no need for fundamental change
in the EU’s Growth and Stability Pact is to argue that the EU should take
no effective position at all. What might be done? The issue is urgent as
several member states, including Britain and Germany, are contemplating
significant legislative and constitutional change to their fiscal policy
regimes.
Meaningful targets for each member state could be framed on the basis
of a sustainable long term debt to GDP position with much greater
transparency on whether current fiscal policies are consistent with
achievement of the long term target. The key requirement is to agree on
rules whereby an adequate portion of the proceeds of restored growth is
steadily devoted to reducing national debt, without attempting a fiscal
consolidation at such speed that growth itself is stifled. In judging progress
towards member state compliance with a revised set of fiscal rules, there is
a strong argument to be made that the quality as well as the quantum of
public expenditure needs to become a guiding principle. Some argue that
“social investments” like research, university spending, training and early
years education should be protected from fiscal restraint if they can be
shown to deliver high economic and social returns. This raises the issue of
whether an operational definition of what constitutes “social investment”
is feasible.
But there is a bigger question of what will be the wider purpose of new
fiscal rules. Leading economists argue that the Euro area, as a zone of
low inflation, is one of the areas of the globe that can lead the world out
of recession. In this dimension of economic policy coordination, the
position of Germany is crucial. With its strong balance of payments and
dominant position as the motor of the European economy, Germany
needs to be persuaded that a prudent decision to expand its own economy
will not lead to significant inflationary risk nor profligacy elsewhere, or
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After the crisis: A new socio-economic settlement for the EU