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How to strengthen EU economic governance

How to strengthen EU economic governance. Laura Hartman 30 August 2010. Other necessary measures. Deal with the crisis Bank restructuring Clarification of the framework of Eurozone fiscal transfers Structural reforms Flexible labour markets Competitiveness Wage formation.

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How to strengthen EU economic governance

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  1. How to strengthen EU economic governance Laura Hartman 30 August 2010

  2. Other necessary measures • Deal with the crisis • Bank restructuring • Clarification of the framework of Eurozone fiscal transfers • Structural reforms • Flexible labour markets • Competitiveness • Wage formation

  3. Reforms of economic governance • Strengthening EU fiscal rules • Broader macroeconomic surveillance • Stronger national fiscal frameworks • Independent fiscal institutions • A permanent crisis resolution mechanism References: Calmfors, L (2010), Fiscal Policy coordination in Europe. Baldwin, R, D Gros, and L Laeven (eds.) (2010), Completing the Eurozone Rescue: What more needs to be done?

  4. Strengthening EU fiscal rules • Sanctions should be earlier, more gradual, simple, and transparent • No possibilities to extend deadlines for correcting an excessive deficit • More effective decision-making procedures in the Ecofin council

  5. Broader macroeconomic surveillance • Ireland and Spain • Set up a mechanism to identify and eliminate macroeconomic imbalances • Monitoring of private debt developments • BUT: evaluation of the fiscal risks arising from macroeconomic imbalances require judgement and should not be mechanical

  6. Stronger national fiscal frameworks • Well-defined fiscal objectives • Ex-ante guidelines for fiscal policy as a stabilisation tool • Commitments to transparency • Incentives to avoid deviations from fiscal objectives • Address the disconnect between policy processes at the European and the national levels

  7. Independent fiscal institutions • Fiscal watchdogs / fiscal policy councils • Sweden (2007), Canada (2008), Hungary (2008), Slovenia (2009), and the UK (2010) • Increase fiscal transparency • E.g. by ex-ante and ex-post evaluation of fiscal policy against its targets • Implementer of macroeconomic surveillance • Independence important! • European fiscal council, outside Commission

  8. A permanent crisis resolution mechanism • European Monetary Fund (Gros & Mayer 2010) • Strict conditionality regarding fiscal consolidation • Linked to surveillance: • Stability Pact fines & sanctions could go into the fund, “insurance fees” • Surveillance to determine the amount of risk that private investors would have to take. Decided in advance (by an independent European fiscal policy council) • Put end to bail-out “blackmails”.

  9. Did the crisis weaken or strengthen the European cooperation? • Weaken – Member States have broken against the rules. • Strengthen – common actions to help member States in trouble. • Possibly strengthen – crisis started a process, based on cooperation, to reform the economic governance. Success or failure? The future will show.

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