Towards a progressive EMU fiscal governance
Abstract
The fi scal governance of the EMU is in dire need of reform. Its current
arrangements suff er from several shortcomings, most notably, the limitations
they impose on national fi scal policies, steering them towards too restrictive
or pro-cyclical stances; the absence of an unconditional lender of last resort
for governments and the consequent doubts over the ‘safe asset’ status of
national government bonds that this absence creates; the underdevelopment
of an economic (policy) union, resulting in the dominance of public defi cit
and debt considerations over considerations of well-being, full employment
and broader economic objectives in guiding the conduct of fi scal policies; and
last but not least, the fact that, under the EMU institutional architecture,
there are fewer opportunities for democratic participation and scrutiny of the
conduct of fi scal policies. Starting from the view that the crises in the euro
zone were basically triggered by fi nancial markets and reinforced by a lack
of instruments for eff ective economic policy at the EMU level, we contribute
to the ongoing debate on how to reform the Eurozone. We propose a focus on
general principles for fi scal governance reform aiming at a better economic,
social and environmental performance on the part of EMU. As the main
principles for progressive governance, we identify a need for:
– a much more active and prominent role for fi scal policy;
– ‘safer’ government bonds;
– more and better coordination between fi scal and other economic, social
and environmental policies, as well as between member states, to foster
sustainable well-being; and
– more democratic participation and scrutiny.
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