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A (late) thread on the Eurozone budget term sheet, recently released by the Eurogroup here: consilium.europa.eu/en/press/press… … 1/
Before discussing the term sheet itself, I think it is useful to review how we got here and what the positions of various countries are, on the subject of risk-sharing vs. risk-reduction (I'll keep it short) 2/
FR leads the risk-sharing camp. Macron advocated for a common finance ministry and a separate EZ budget that “would (...) mean establishing a minimum level of solidarity to eventually be able to raise money in common, invest, and absorb economic shocks" euobserver.com/economic/138841 3/
ES' official position (more and more important these days) calls for the creation of a EZ central budget “to promote competitiveness, convergence and stabilization, starting in 2021, with full democratic accountability”. lamoncloa.gob.es/presidente/act… 4/
Before the recent clash with BXL, the current IT government advocated at some point “(...) a political approach – namely, a Politeia, a jointly agreed vision pursuing the European common good” politicheeuropee.gov.it/it/ministro/co… … 5/
DE has been reticent on EZ budget andother risk-sharing measures. The Meseberg Declaration, supposedly a FR-DE compromise positions, does not address stabilization concerns nor advances on EDIS diplomatie.gouv.fr/en/country-fil… 6/
The Council in June 2018 did not deliver advancements on risk sharing vs reduction. The Euro Summit in December 2018, while endorsing the terms of the SRF and ESM reform did not mention EDIS nor the word stabilization anywhere in the final statement. 7/
With the passing of time, the French stance on risk sharing has been weakening. In his appeal to European voters – published across the EU in March 2019 – Emmanuel Macron dropped any reference to the controversial issue of Eurozone macroeconomic governance reform altogether 8/
A recent report published by DE Council of Economic Experts rejects the idea of a central fiscal capacity, arguing that “any insurance function performed by a fiscal capacity can, in practice, hardly be distinguished from quasi-permanent transfers” sachverstaendigenrat-wirtschaft.de/fileadmin/date… 9/
Other EZ countries are less willing than DE to engage in risk sharing. The Dutch government argued that “solidarity demands responsibility” and the single currency should “bring us all more prosperity and not a redistribution of existing prosperity” 10/ government.nl/documents/spee…
A group of Northern countries argue that stabilization has to be dealt with at national level and a stronger EMU “starts with (...) building up fiscal buffers in national budgets to allow room for national fiscal policies [...] to smoothen downturns” government.se/statements/201… 11/
A joint FR-DE paper on released in February seemed to conceive the budget mostly as helping Member States to pursue structural reforms. The view seems to be that the budget should focus on promoting convergence, and that convergence itself would deliver stabilization. 12/
The meaning of 'convergence' and 'stabilization' is largely unspecified in the document, but the emphasis on structural reforms suggests the objective may be a broad convergence of economic growth models towards those identified as the best performers. 13/
Such an intellectual premise implies a view of ‘stabilization’ mostly as business cycles synchronisation: risk of asymmetric shocks would be lower if economies were structurally more similar. This feels like a revival of the 'economists' vs. 'monetarists' debate 14/
In embracing a view that sees no role for stabilization but rather portends that the objective should be convergence, and that convergence will itself deliver stabilization, the paper locates itself in the camp of those who want to root EZ reform onto risk reduction. 15/
The term sheet published last week follow closely in the track. First, the budget is for "convergence and competitiveness", stabilization is not even mentioned once. 15/
Second, the intellectual premise is the same as the FR-DE paper mentioned above: "The instrument will strengthen the Economic and Monetary Union by supporting a higher degree of convergence and competitiveness within the euro area and participating Member States" 16/
Third, allocation of funds per country does not follow need but will be determined on the basis of a "transparent methodology", and the available funds per country "should be within an acceptable range of the contributions of that country" 17/
Fourth, access to financing will depend on implementation of structural reforms and investments and respect of macro-economic conditionality in the Common Provisions Reg. Member States will receive financial support in instalments, subject to fulfilment of agreed milestones 18/
So, summing up: this is not an EZ budget as it was initially conceived by those advocating for more risk-sharing. It does not feature any stabilization function, and the political position of the EG now seems to be not even to mention the term in abstract. 19/
The intellectual basis on which the obliteration of the stabilization discussion has occurred is a revival of the (not new) idea that structural convergence will suffice to deliver stabilization. It is not a view that lends itself well to introduce risk-sharing in the EZ. 20/
The fact that programme countries (not Italy, Italy is an outlier) have massively converged towards Northern standards in macroeconomic terms is completely overlooked, across all this discussion. The term sheet reads like a compromise that nobody wants 21/
The result is a badly executed hybrid b&w (i) a duplicate of the structural funds tool and (ii) a mild version of a macroeconomic adjustment programme. It's not what the EZ needs. Many say it's a first step, but if this is the direction we may as well not move at all end/
(Sorry, this wasn't short after all!)
