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The Global Economy in a Time of Uncertainty:

Can the euro hold? A proposal for a Growth and Fiscal Compact Mario Tonveronachi University of Siena, Italy. The Global Economy in a Time of Uncertainty: Capitalist trajectories and progressive alternatives Conference organised by Ideas, Muttukadu , India, January 24-26, 2012.

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The Global Economy in a Time of Uncertainty:

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  1. Can the euro hold?A proposal for a Growth and Fiscal CompactMario TonveronachiUniversity of Siena, Italy The Global Economy in a Time of Uncertainty: Capitalist trajectories and progressive alternatives Conference organised by Ideas, Muttukadu, India, January 24-26, 2012

  2. The euro construction • The institutional design: add pre-entry convergence and post-entry consistency to national sovereignty • Requirements: correct sets of pre-entry and post-entry rules and their enforcement

  3. What went wrong Wrong sets of rules and lack of enforcement • Pre-entry lack of enforcement: non-complying countries into the euro • Pre-entry insufficient rules: admittance of countries with dodgy accounting and evident macroeconomic imbalances • Post entry lack of enforcement of fiscal discipline • Post entry lack of enforcement of common non-lax financial supervisory practices • Post entry divergent national policies

  4. What went wrong • The result: increasing structural divergences in the real and financial sectors

  5. A new design • A medium-long term credible design, also necessary as reference for short-term adjustments • Presently, no room for a profound revision of the EU Treaties • Room of manoeuvre given by the Treaties: • Political and policy discretion at EU and national level • Public investment • Current-account symmetric adjustments • Limits posed by existing EU Treaties: non-bail out clause and limited scope by ECB on public debts • New agreements are permitted for more stringent rules, but not for weaker ones

  6. Recent reforms and official proposals Economic Governance • Procedure: European semester • Content: Coordination of National Programmes on Stability (fiscal sustainability) and Reform (growth) • Rules: • Six pack: stronger enforcement of fiscal rules and surveillance on macroeconomic imbalances • Fiscal compact: constitutional 0.5% max structural deficit rule + 1/20 debt rule • Growth is reduced to the correction of imbalances so that the solution of multiple equilibria goes towards deflation • Firewall: • ESM, a European fund to finance illiquid governments, to manage in collaboration with the IMF

  7. Recent reforms and official proposals Financial governance • New institutional framework for financial regulation and supervision • National supervisors retain crucial discretion • The link between sovereign and financial crises was not severed

  8. A Growth and Fiscal Compact Add a Growth Compact with the same level of enforcement as the Fiscal Compact • Framework of Europe 2020: employment, innovation, education, social inclusion and climate/energy • Expand existing programmes (e.g. EU flagship initiatives) and use flexibilities to insert growth initiatives into the European Semester Add a Growth European Fund to the ESM • Problems: • Enforcement • Funding

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