The following contribution was authored by Alessandro Leipold, economic adviser to the Lisbon Council and former acting director of the IMF's European department.
"A single issue is dominating European-level deliberations, and deservedly so. The issue is European Union economic governance – that is, how to equip Europe with rules, procedures and institutions capable of ensuring the sustainable functioning of economic and monetary union for the indefinite future. The related stakes are high – indeed, no less than the future of the euro itself hangs in the balance.
The crisis– and notably the EU's difficulties in dealing with the Greek situation – has undeniably focused minds, leading to a comprehensive definition of the objectives, procedures and instruments required for the EU's effective economic governance.
This e-brief will focus on the gaps in what has so far been proposed, looking to make recommendations for better, stronger economic governance in the euro area. The ensuing proposals – politically unthinkable prior to the crisis – are largely apposite and would, if firmly implemented, represent appreciable steps forward. They would, in particular, fill one important gap: that of surveillance over macro-economic imbalances and competitiveness developments.
Among the e-brief's key recommendations: 1) Firmly resist political weakening of the European Commission and European Central Bank proposals which, if fully implemented, would represent appreciable steps forward. The controlled, in-house preparations– assigned to a Task Force for Economic Governance, comprised mostly of national finance ministers– seriously risk watering down these proposals. If so, Europe will have 'let a good crisis go to waste'. 2) Enshrine financial stability as an explicit objective of economic governance – a surprising absence in current proposals. Adopt procedures to ensure close macro-financial integration and an operational role for the European Systemic Risk Board. 3) Provide incentives to countries to comply with common rules – sticks alone are insufficient; redirect cohesion funds to address underlying causes of intra-EU imbalances. 4) Promote enhanced national ownership of reform and EU-agreed programmes, without which the touted 'European semester of policy coordination' risks being yet another domestically irrelevant, 'Brussels-talking-to-Brussels' exercise. 5) Strengthen national fiscal frameworks, anchoring domestic rules firmly in EU requirements, monitored by independent national fiscal councils – leaving laggards little choice but to follow suit. 6) Establish an independent EU fiscal agency to monitor fiscal developments, enhance pressure for rectitude and raise the reputational costs of reneging on common commitments. 7) Promptly start work on creating a permanent EU crisis management and resolution mechanism that goes beyond the European Financial Stability Facility, while avoiding that moral hazard concerns result in a punitive, ineffective mechanism. 8) Establish and publish agreed principles and procedures for EU-IMF cooperation, with joint assistance being the accepted norm, helping frame market expectations. 9) Recognise the ultimate need to go beyond the current Treaty for a full-fledged economic governance framework, and begin building the required consensus.
In sum, while first principles would ideally demand re-opening the Treaty, much can be done even within its confines, if these are fully exploited.
This e-brief tries to identify some of the gaps in the present proposals and discussions, in the intent of ensuring– as decisions are taken between now and the end of the year– that Europe will not let "a good crisis go to waste."
Let us hope– for the future of the euro itself– that Jean Monnet was indeed right when he proclaimed that 'Europe will be built in crises, and will be the sum of the solutions brought to these crises'."
To read the analysis in full, please click here.
