Le gouvernement économique for the EU:

much ado about what?

Anna Dekalchuk,March, the 26th

OUTLINE

1. le gouvernement économique: the French vision

2. negotiating the EMU: which place for a g.é.?

3. the Maastricht architecture and its defects

4. current debate and current meaning of a g.é.

“The French have traditionally used the words "European economic government" to mean something like: politicians being allowed to bully the European Central Bank about exсhange rate policies, and to flout deficit rules if their countries are large, broadly hexagonal in shape, and are known for fine wine and cheeses”

(The Economist, Charlemagne’s notebook, ‘10)

1. le gouvernement économique: the French vision

1. le gouvernement économique: the French vision

1. economic policy co-ordination with other member state governments and with the ECB to achieve an ‘appropriate’ policy mix;

2. a more energetic EU-level interventionism designed to stimulate economic growth and create jobs;

3. the reinforcement of EMU’s credibility and legitimacy;4. an explicit challenge to the ECB’s goals and goal-setting and

operational independence.(Howarth, ‘07: 1062)

This concept has been manipulated to cover:

12 3

4

2. negotiating the EMU: which place for a g.é.?

conducting exchange rate policy

coordinating economic policies

speaking with one voice externally1.

2.

3.

an economic government could contribute trough:

(Pisani-Ferry, ‘06: 826)

2. negotiating the EMU: which place for a g.é.?

“In the economic field a wide range of decisions would remain the preserve of national and regional authorities. However, given their potential impact on the overall domestic and external economic situation of the Community and their implications for the conduct of a common monetary policy, such decisions would have to be placed within an agreed macroeconomic framework and be subject to binding procedures and rules.

This would permit (1)the determination of an overall policy stance for the Community as a whole, (2)avoid unsustainable differences between individual member countries in public sector borrowing requirements and (3)place binding constraints on the size and the financing of budget deficits”

(Report on economic and monetary union in the European Community, ‘89: 18)

“The combination of a small Community budget with large, independently determined national budgets leads to the conclusion that, in the absence of fiscal co-ordination, the global fiscal policy of the EMU would be the accidental outcome of decisions taken by Member States. There would simply be no Community-wide macroeconomic fiscal policy”

Macro-coordination of fiscal policies in an EMU in Europe,

1989

2. negotiating the EMU: which place for a g.é.?

Therefore “fiscal policy co-ordination would appear to be a vital element of a European EMU and of the process towards it. Appropriate arrangements should therefore be put in place which would allow the gradual emergence, and the full operation once the EMU is completed, of a Community-wide fiscal policy. Such arrangements should also aim at avoiding disruptive differences between the public sector borrowing requirements of individual member countries”

Macro-coordination of fiscal policies in an EMU in Europe,

1989

2. negotiating the EMU: which place for a g.é.?

2. negotiating the EMU: which place for a g.é.?

(Begg, Hodson, Maher, ‘03: 71)

Art.111: “the Council may formulate general orientations for exchange-rate policy… these general orientations shall be without prejudice to the primary objective of the ESCB to maintain price stability” andLuxembourg European Council, ‘97

Eurogroup, ‘97

3. the Maastricht architecture and its inborn defects

(Krugman, ‘10)

Spain is disciplined

3. the Maastricht architecture and its inborn defects

(Krugman, ‘10)

check out the inflation

3. the Maastricht architecture and its inborn defects

that doesn’t mean that Germans are evil, though

(Krugman, ‘10)

3. the Maastricht architecture and its inborn defects

neither are Dutch

(IMF, 2009 World Economic Outlook)

4. current debate and current meaning of a g.é.

? Il existe désormais un consensus historique entre l’Allemagne et la France sur la voie à suivre ?

EUROPEAN COUNCIL, February, the 11th

A.Merkel: “The EU needs to better coordinate … We [the European Council] are presenting ourselves as an economic government of 27 countries”

(F.Fillon, ‘10: 9)

4. current debate and current meaning of a g.é.

EU 2020 with larger teeth?

European Monetary Fund with the Treaty change?

stronger fiscal discipline!

GERMANYand a g.é.

“The margins within which the main budget aggregates must be held both for the annual budget and the multi-year projections will be decided at the Community level, taking account of the economic situation and the particular structural features of each country. A fundamental element will be the determination of variations in the volume of budgets, the size of the balance and the methods of financing deficits or utilizing any surpluses. In order to be able to influence the short term economic trend rapidly and effectively it will be useful to have at the national level budgetary and fiscal instruments that can be handled in accordance with Community directives”

(Werner plan, ‘70: 11)

Werner plan, 1970

4. current debate and current meaning of a g.é.

to discuss

1. why do Germans still speak about fiscal discipline?

2. is fiscal union possible to appear during this crisis?