engleski

Fiscal impact on European Union macroeconomic performance

Analysis of the European Union (EU) fiscal policy indicates significant differences between the old member states (old EU members or EU 15) and countries that joined the EU 2004 and 2007 (new EU members or EU 12). On the one hand there are the old EU members that have adopted but not applied Stability and Growth Pact (SGP) rules. On the other hand, the new EU member states had to meet the criteria of the Maastricht Treaty, the same criteria to even enter into the monetary union. The adjustment of the Stability and Growth Pact rules occurred in 2005 after France and Germany breached the provisions of the Pact, but financial sanctions are not applied. This has shown the weaknesses in the implementation of the Stability and Growth Pact. SGP inability to maintain fiscal discipline within the EU is particularly emphasized by the new reform 2011 as a result of the economic and financial crisis that began 2008 and is still going. Member States have lost their monetary sovereignty by establishing the European Economic and Monetary Union 1993 (Maastricht Treaty) and fiscal policy has become a key instrument of macroeconomic policy management. States that wish to enter the monetary union according to Maastricht Treaty must meet monetary and fiscal criteria. To ensure fiscal sustainability after joining the euro area Member States 1997 signed the Stability and Growth Pact, which has been applied since 1999. Maastricht convergence criteria have a binding character for the future members of European Monetary Union while sanctions for violations of provisions of the Stability and Growth Pact subject apply to the members of the monetary union, although referring to all members of the European Union. Reform of the Stability and Growth Pact from 2005 achieved greater flexibility in the application of excessive deficit procedure. During the economic and financial crisis mechanisms that are supposed to ensure fiscal discipline have been activated. As a response to the ongoing financial and economic crisis a new economic surveillance mechanism within the EU emerged. Macroeconomic Imbalance Procedure (MIP) relies on an alert system that uses a scoreboard of indicators and in-depth country studies as well as the strict rules in order to prevent and correct macroeconomic imbalances. The continuous monitoring of the economic situation in EU countries could have anticipated the macroeconomic imbalances that should have been corrected in order to mitigate the impact of the economic crisis. This paper examines the circumstances in which fiscal rules are changed, new economic surveillance mechanism is introduced and emphasizes how the asymmetry in the application of fiscal rules becomes an additional cause of suboptimal macroeconomic performance of the EU and not a solution.

fiscal policy ; stability and growth pact ; stabilisation ; excessive deficit procedure

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