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FISCAL COORDINATION
EU ECONOMIC GOVERNANCE
18.01.14
TEODOR KALPAKCHIEV
THE EUROPEAN CENTRAL
BANK
 Art. 127 TFEU / Art. 2 Statute of ECB – Primary
objective: To maintain price stability
 Infla...
Decisi
on –
Makin
g
Executive
Board
Implementation of Monetary
Policy
Daily Maintenance
President, Vice, 4 other
Members (...
OPTIMUM
CURRENCY AREAS
Necessary
Requirements
Labour
Mobility
Full Implementation
Freedom of movement, workers’ rights,
in...
THE IDEAL (CASE)
• Centralization of budgets of MS (Federal
Budget)
• European Social Security System
• Income taxes levie...
IN REALITY
No centralization of national
budgets
Countries experience asymmetric
shocks
Increase borrowing = Increase
Exte...
SIX PACK
Five Regulations and one Directive /all
MS/
Fiscal and macroeconomic surveillance
Operationalizes the debt criter...
SIX PACK
Two-Pack: 2) Financial difficulties
EC decides on Euroarea MS, ESM MS –
auto
Involves: address the sources of
ins...
MACROECONOMIC
IMBALANCE
PROCEDURE
• Introduced Autumn 2011
• Part of the Six-Pack
• Indicators are not interpreted directl...
THE EURO + PACT
• Adopted in March 2011
• Tax Policy Coordination only as
commitment
• Four Main Goals
• fostering competi...
THE EUROPEAN SEMESTER
• Pre-Phase: November/December:
• Annual Growth Survey – policy priorities
• Alert Mechanism Report ...
FUTURE
• Eurobonds
• Convergence and Competitiveness
Instrument /Structural reforms
contractual agreement/
• Build on MIP,...
THANK YOU.
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Teodor Kalpakchiev. EU Economic Governance. Fiscal coordination.

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Willy Brandt School of Public Policy.

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Teodor Kalpakchiev. EU Economic Governance. Fiscal coordination.

  1. 1. FISCAL COORDINATION EU ECONOMIC GOVERNANCE 18.01.14 TEODOR KALPAKCHIEV
  2. 2. THE EUROPEAN CENTRAL BANK  Art. 127 TFEU / Art. 2 Statute of ECB – Primary objective: To maintain price stability  Inflation Targeting = Price Stability  Governing Council: "Price stability is defined as a year- on-year increase in the Harmonised Index of Consumer Prices (HICP) for the euro area of below 2%.“  Medium-term orientation  Counter shocks /demand nature, cost-push nature/
  3. 3. Decisi on – Makin g Executive Board Implementation of Monetary Policy Daily Maintenance President, Vice, 4 other Members (8) Governing Council Main decision-making body Executive Board + Governors NCB (18) General Council Transitional Issues President, VP, NCB Governors of all MS (28)
  4. 4. OPTIMUM CURRENCY AREAS Necessary Requirements Labour Mobility Full Implementation Freedom of movement, workers’ rights, institutional arrangements Openness Price and wage flexibility Wage Flexibility ? Risk-sharing system Automatic fiscal transfer mechanism / Solidarity / No-bail out clause in the Stability and Growth Pact Separate arrangement – EFSM / ESM Joint central bank Corrective Mechanism Contain Inflation Promote growth through interest rates - Maximize economic efficiency - Optimal characteristics for emergence of a currency zone - Conceived by Robert Mundell
  5. 5. THE IDEAL (CASE) • Centralization of budgets of MS (Federal Budget) • European Social Security System • Income taxes levied by an European Government • Variables: Demand, Output, Income tax revenues, social security contributions, unemployment • Additional benefit: Fragility of (a presumptive) Bond Market is reduced • Pooling the Issue of governmental bonds • Ability to control the currency in which the debt is issued • Critique • Moral Hazard • Ratings and International Borrowing • Differentiation of debt into below (blue) and above (red) 60% of GDP (Grauwe, Moesen, Bruegel)
  6. 6. IN REALITY No centralization of national budgets Countries experience asymmetric shocks Increase borrowing = Increase External Debt Implications: • Centralize budgets to reduce fragility • If not, flexibility of national fiscal policies should be allowed
  7. 7. SIX PACK Five Regulations and one Directive /all MS/ Fiscal and macroeconomic surveillance Operationalizes the debt criterion Interest bearing deposit 0.2 % (up to 0.5%) GDP Reverse QMV Two-Pack (I.F. 30.05.13): 1) Budgets 3 year budget plans and draft budgets to be approved by EC and the Eurogroup Analyses whether in line with E.Semester and GSP – opinion or a revised draft
  8. 8. SIX PACK Two-Pack: 2) Financial difficulties EC decides on Euroarea MS, ESM MS – auto Involves: address the sources of instability, review missions, quarterly reporting from EC to Eurogroup MS might seek technical assistance (Task Forces) Council may decide the MS does not comply with the adjustment program – disbursements (Draft) post-programme surveillance as long as it has not repaid 75% of its debt
  9. 9. MACROECONOMIC IMBALANCE PROCEDURE • Introduced Autumn 2011 • Part of the Six-Pack • Indicators are not interpreted directly • EC determines if imbalances exist and what is their nature • Not severe: Incorporated in the European Semester – Preventive Arm • Severe: Corrective Arm • Surveillance and Regular Progress Reports • Enforcement (up to 0.1% GDP), if the country fails to deliver a corrective plan or the agreed actions 1st Alert Mechanism Report in February 2012 – Preventive Arm Belgium, Bulgaria, Cyprus, Denmark, Finland, France, Italy, Hungary, Slovenia, Spain, Sweden and the United Kingdom. 2nd Alert Mechanism Report in November 2012 – excessive imbalance in Spain and Slovenia, but not triggered 3rd Alert Mechanism Report – widened: Germany, Croatia and Luxembourgh
  10. 10. THE EURO + PACT • Adopted in March 2011 • Tax Policy Coordination only as commitment • Four Main Goals • fostering competitiveness • fostering employment – flexicurity, lowering taxes on labour, targeting older workers, limit early retirement • sustainability of public finances on national and sub-national level • reinforcing financial stability • Abolish wage indexation – not compensate for inflation, less expensive to employ people / less purchasing power • Common Corporate Tax – reduce administrative burden / detract from competitiveness in certain countries • Raising Pension Age – Revenues and less burden on social security funds / social costs • Adopting debt brakes (as in Switzerland and Germany) • Promote flexicurity • Private debt
  11. 11. THE EUROPEAN SEMESTER • Pre-Phase: November/December: • Annual Growth Survey – policy priorities • Alert Mechanism Report – macroeconomic development • EC may decide to conduct in-depth review • 1st Phase: January/February: • Council discusses it in different formulations • EP too and publishes opinion on employment guidelines • Economic dialogue with other actors • March: • E. Council – policy orientations • EC – in-depth review of marcro imbalances • EC may draft recommenations • April: MS submit their • Stability or Convergence Programmes • National Reform Programmes • May/June: EC evaluates and issues recommendations, the Council discusses them, the European Council endorses them • June/July: Country-specific recommendations are adopted by the Council
  12. 12. FUTURE • Eurobonds • Convergence and Competitiveness Instrument /Structural reforms contractual agreement/ • Build on MIP, a filter for major reforms eligible to be accompanied by fin. support • Financial Transaction Tax • Single Supervisory Mechanism /European Banking Authority/ • Single Resolution Mechanism
  13. 13. THANK YOU.

Willy Brandt School of Public Policy.

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