Transcript Can the euro hold? A proposal for a Growth and Fiscal

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
The euro construction
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The institutional design: add pre-entry convergence and post-entry
consistency to national sovereignty
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Requirements: correct sets of pre-entry and post-entry rules and
their enforcement
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What went wrong
Wrong sets of rules and lack of enforcement
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Pre-entry lack of enforcement: non-complying countries into the euro
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Pre-entry insufficient rules: admittance of countries with dodgy
accounting and evident macroeconomic imbalances
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Post entry lack of enforcement of fiscal discipline
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Post entry lack of enforcement of common non-lax financial
supervisory practices
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Post entry divergent national policies
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What went wrong
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The result: increasing structural divergences in the real and financial
sectors
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A new design
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A medium-long term credible design, also necessary as reference
for short-term adjustments
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Presently, no room for a profound revision of the EU Treaties
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Room of manoeuvre given by the Treaties:
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Political and policy discretion at EU and national level
Public investment
Current-account symmetric adjustments
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Limits posed by existing EU Treaties: non-bail out clause and limited
scope by ECB on public debts
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New agreements are permitted for more stringent rules, but not for
weaker ones
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Recent reforms and official proposals
Economic Governance
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Procedure: European semester
Content: Coordination of National Programmes on Stability (fiscal
sustainability) and Reform (growth)
Rules:
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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:
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ESM, a European fund to finance illiquid governments, to manage in collaboration
with the IMF
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Recent reforms and official proposals
Financial governance
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New institutional framework for financial regulation and supervision
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National supervisors retain crucial discretion
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The link between sovereign and financial crises was not severed
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A Growth and Fiscal Compact
Add a Growth Compact with the same level of enforcement as the
Fiscal Compact
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Framework of Europe 2020: employment, innovation, education,
social inclusion and climate/energy
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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
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Problems:
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Enforcement
Funding
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