June 4, 2010
The financial crisis that hit global economy in late summer 2007 is the worst in post-war economic history. It affected the European Union, proving the need for real economic governance in Europe involving convergence of fiscal policies.
Up till now, there has only been economic administration in the monetary section. The need for economic governance has two aspects: firstly, it is a political choice for confronting economic problems, and secondly, it is economic demand for effective use of economic assets (through coherence policies).
Today, fiscal policy remains a competence of individual EU member states, but comes under common rules which are enacted by the EU Treaties and the Stability and Growth Pact, which promotes fiscal discipline by member states and a system of mutual observance, so that the public deficit to Gross Domestic Product (GDP) ration does not exceed the limit of 3%.
Today, the basic economic institutions responsible at macroeconomic level for economic governance in the EU are the ECOFIN Council and the European Central Bank. The Lisbon Treaty empowers the president of the Eurogroup (which reinforces credibility and transparency) and the European Central Bank (whose role is to ensure price stability in the ruro zone).
The Ecofin Council is comprised of economy ministers, and votes on the EU’s general economic direction. The Eurogroup Council is comprised of economy ministers from the euro zone.
Is the Lisbon Treaty enough for integrated economic governance in the EU? The answer is ‘no’. The Lisbon Treaty is only the beginning. Integrated economic governance must concern all member states, not just the euro zone. So a prerequisite is that all the member states must adopt the euro. But this will be done only when they are able to have strong economies.
Economic governance and European political integration are inter-related issues. Economic union is a necessary prerequisite for the future political union of the EU. European integration implies a European federation.
The states will not easily give their fiscal policy to the supranational level. It is a sensitive political section for national governments. Nevertheless, they should try. Coordination of fiscal policy is necessary, because (a) this will favour society and (b) it will reduce the economic gap and the asymmetry between member states.
The EU must act in order to stop objections. It must be understood that the nation state will not die, but wil be reformed. European integration must go on.
Other issues that need to be addressed are:
1) The EU needs an adequate amount of resources. Now, the European budget represents only 1% of European GDP. This must be increased up to a percentage (5%) able to support economic development and civil protection in the member states.
2) The EU needs a direct European tax in order to be able to promote its policies.
3) The EU needs redistributive institutions in order to promote cohesion between regions of the member states.
4) The members of the Ecofin Council must have the power to act like the economy ministers in their countries.
The Lisbon Treaty is not a perfect text. It is a compromise between the 27 member states. It will take time to apply the Lisbon Treaty. The next step, when the conditions materialise, must be a new treaty, maybe even a Constitutional Treaty.
The EU started as an economic community. Thus, economic union, financial integration and economic integration are the next steps. This must be understood by all member states. The collapse of the European construction is in no-one’s interest. We need positive integration based on trust and on the idea of constructing a better future that will reinforce the EU, not only at internal level, but also at global level.
Only then will EU achieve its goal: to be the most dynamic and competitive economy in the world.
MA student in European and international affairs
Univerisity of AthensAuthor : Letters to the EurActiv editor