The document discusses the European Union's response to the 2008 financial crisis and proposes reforms. It argues that the EU adopted wrongheaded Keynesian and monetarist policies that fueled debt and instability. It recommends that the EU pursue centralized banking and fiscal policy managed by the ECB and Court of Auditors, along with decentralized fiscal management by member states to converge their economies. Specifically, it proposes enhancing the competence of EU institutions for eurozone members and a voluntary approach for non-eurozone members based on centralized banking regulation and regional cooperation on taxes and credits.
2. WHERE ARE EU COMING FROM?
THE US & THE WORLD
Sub-Prime Selling
THE UK & THE WORLD
Northern Rock
2
• Commission on houses
sold more than their
worth
• Lending to people who
can’t afford to pay back –
for Commission
• Buying and selling of
shares on short-term gain
basis
• Lack of consumer
confidence in markets
and banks
BOOM
BUST
!HIGH PRICE ASKED & LOW PRICE WANTED = ‘UNFAIR PRICE’
CUSOMERS DEFAULT = IT’S THE BANKERS FAULT
3. WHAT DID EU DO WRONG?
Crass Keynesianism (Quantitative easing)
3
Increase money supply with printed money
Recapitalised the banks
Secured pensions and savings
Secured short-term national credit ratings
Goods inflation needs to grow
Low demand caused disequilibrium
Jobs/wages needs to be tightened
Low supply cased disequilibrium
Crass Monetarism (Fiscal Union)
All ‘singing from the same hymn sheet’
Inability of Member States manage local
economies
CRASH
!DEBT FUELLED GROWTH + DEBT FUELLED RECOVERY
= INFLATION, UNEMPLOYMENT, STAGFLATION x 2
4. WHAT MUST EU DO NOW?
CENTRALISED BANKING AND FISCAL
POLICY
Manage the Market
ECB
• Sets single interest rate
• Sets varying ‘Tobin rate’
Court of Auditors
• Single Stock Exchange
• Monitor fiscal management
DECENTRALISED FISCAL MANAGEMENT
Converge the
Economies
EU Governments
• Use single interest rate as
benchmark in order to use
fiscal powers to
• Converge wages
• Converge
4
SAVED!
REGULATION + CONVEGENCE
= MANAGED GROWTH + HARMONOUS INTEGRATION
5. HOW DO EU GET IT DONE?
EUROZONE
Enhanced Co-
operation
• Increase competence of
• ECB/ESCB/Eurosystem
• Court of Auditors
• Regional treasuries
• Decrease competence of
• National lending bodies
OUTSIDE EUROZONE
Voluntary Approach
• Central Banks Regulate:
• Stock markets
• Interest rates
• Regional approach to:
• Income taxes / credits
• Business taxes / credits
• Purchases taxes
5
SIMPL
E!ONE FRAMEWORK FOR THE EUROZONE
DIFFERENT ONE’S FOR ALL THE OTHERS
6. WHAT ABOUT THE REST OF EU?
6
ONE
SIZE!DOES NOT FIT ALL
IT ONLY LEADS TO FREE-FALL
United Kingdom
Converge or die?
Adopt EU interest rate for easier convergence?
Use exchange rate for harmonising wages/goods prices?
Greece
The ‘Gold Standard’?
Gold for euros to increase money supply?
The ‘Sweden Model’?
Tied to euro, but own currency to increase
confidence?
Germany
Give up control or give up the ghost?
7. WHAT QUESTIONS DO YOU HAVE?
• The Economics
• Monetarianism
• Keynesianism
• European Union Law
• Enhanced Co-operation
• Anything else?
7
Editor's Notes
Article 282
1. The European Central Bank, together with the national central banks, shall constitute the
European System of Central Banks (ESCB). The European Central Bank, together with the national
central banks of the Member States whose currency is the euro, which constitute the Eurosystem, shall
conduct the monetary policy of the Union.
2. The ESCB shall be governed by the decision-making bodies of the European Central Bank. The
primary objective of the ESCB shall be to maintain price stability. Without prejudice to that objective, it
shall support the general economic policies in the Union in order to contribute to the achievement of
the latter's objectives.
3. The European Central Bank shall have legal personality. It alone may authorise the issue of the
euro. It shall be independent in the exercise of its powers and in the management of its finances. Union
institutions, bodies, offices and agencies and the governments of the Member States shall respect that
independence.
4. The European Central Bank shall adopt such measures as are necessary to carry out its tasks in
accordance with Articles 127 to 133, with Article 138, and with the conditions laid down in the
Statute of the ESCB and of the ECB. In accordance with these same Articles, those Member States
whose currency is not the euro, and their central banks, shall retain their powers in monetary matters.
5. Within the areas falling within its responsibilities, the European Central Bank shall be consulted
on all proposed Union acts, and all proposals for regulation at national level, and may give an opinion.
Article 125
(ex Article 103 TEC)
1. The Union shall not be liable for or assume the commitments of central governments, regional,
local or other public authorities, other bodies governed by public law, or public undertakings of any
Member State, without prejudice to mutual financial guarantees for the joint execution of a specific
project. A Member State shall not be liable for or assume the commitments of central governments,
regional, local or other public authorities, other bodies governed by public law, or public undertakings
of another Member State, without prejudice to mutual financial guarantees for the joint execution of a
specific project.
2. The Council, on a proposal from the Commission and after consulting the European
Parliament, may, as required, specify definitions for the application of the prohibitions referred to in
Articles 123 and 124 and in this Article.
Article 127
(ex Article 105 TEC)
1. The primary objective of the European System of Central Banks (hereinafter referred to as ‘the
ESCB’) shall be to maintain price stability. Without prejudice to the objective of price stability, the ESCB
shall support the general economic policies in the Union with a view to contributing to the
achievement of the objectives of the Union as laid down in Article 3 of the Treaty on European Union.
The ESCB shall act in accordance with the principle of an open market economy with free competition,
favouring an efficient allocation of resources, and in compliance with the principles set out in
Article 119.
2. The basic tasks to be carried out through the ESCB shall be:
— to define and implement the monetary policy of the Union,
— to conduct foreign-exchange operations consistent with the provisions of Article 219,
— to hold and manage the official foreign reserves of the Member States,
— to promote the smooth operation of payment systems.
3. The third indent of paragraph 2 shall be without prejudice to the holding and management by
the governments of Member States of foreign-exchange working balances.
4. The European Central Bank shall be consulted:
— on any proposed Union act in its fields of competence,
— by national authorities regarding any draft legislative provision in its fields of competence, but
within the limits and under the conditions set out by the Council in accordance with the
procedure laid down in Article 129(4).
The European Central Bank may submit opinions to the appropriate Union institutions, bodies, offices
or agencies or to national authorities on matters in its fields of competence.
C 115/102 EN Official Journal of the European Union 9.5.2008
5. The ESCB shall contribute to the smooth conduct of policies pursued by the competent
authorities relating to the prudential supervision of credit institutions and the stability of the financial
system.
6. The Council, acting by means of regulations in accordance with a special legislative procedure,
may unanimously, and after consulting the European Parliament and the European Central Bank,
confer specific tasks upon the European Central Bank concerning policies relating to the prudential
supervision of credit institutions and other financial institutions with the exception of insurance
undertakings.
Article 128
(ex Article 106 TEC)
1. The European Central Bank shall have the exclusive right to authorise the issue of euro
banknotes within the Union. The European Central Bank and the national central banks may issue such
notes. The banknotes issued by the European Central Bank and the national central banks shall be the
only such notes to have the status of legal tender within the Union.
2. Member States may issue euro coins subject to approval by the European Central Bank of the
volume of the issue. The Council, on a proposal from the Commission and after consulting the
European Parliament and the European Central Bank, may adopt measures to harmonise the
denominations and technical specifications of all coins intended for circulation to the extent necessary
to permit their smooth circulation within the Union.
Article 129
(ex Article 107 TEC)
1. The ESCB shall be governed by the decision-making bodies of the European Central Bank which
shall be the Governing Council and the Executive Board.
2. The Statute of the European System of Central Banks and of the European Central Bank
(hereinafter referred to as ‘the Statute of the ESCB and of the ECB’) is laid down in a Protocol annexed
to the Treaties.
3. Articles 5.1, 5.2, 5.3, 17, 18, 19.1, 22, 23, 24, 26, 32.2, 32.3, 32.4, 32.6, 33.1(a) and 36 of the
Statute of the ESCB and of the ECB may be amended by the European Parliament and the Council,
acting in accordance with the ordinary legislative procedure. They shall act either on a
recommendation from the European Central Bank and after consulting the Commission or on a
proposal from the Commission and after consulting the European Central Bank.
4. The Council, either on a proposal from the Commission and after consulting the European
Parliament and the European Central Bank or on a recommendation from the European Central Bank
and after consulting the European Parliament and the Commission, shall adopt the provisions referred
to in Articles 4, 5.4, 19.2, 20, 28.1, 29.2, 30.4 and 34.3 of the Statute of the ESCB and of the ECB.
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Article 130
(ex Article 108 TEC)
When exercising the powers and carrying out the tasks and duties conferred upon them by the Treaties
and the Statute of the ESCB and of the ECB, neither the European Central Bank, nor a national central
bank, nor any member of their decision-making bodies shall seek or take instructions from Union
institutions, bodies, offices or agencies, from any government of a Member State or from any other
body. The Union institutions, bodies, offices or agencies and the governments of the Member States
undertake to respect this principle and not to seek to influence the members of the decision-making
bodies of the European Central Bank or of the national central banks in the performance of their tasks.
THE COURT OF AUDITORS
Article 285
(ex Article 246 TEC)
The Court of Auditors shall carry out the Union's audit.
It shall consist of one national of each Member State. Its Members shall be completely independent in
the performance of their duties, in the Union's general interest.
Article 286
(ex Article 247 TEC)
1. The Members of the Court of Auditors shall be chosen from among persons who belong or
have belonged in their respective States to external audit bodies or who are especially qualified for this
office. Their independence must be beyond doubt.
2. The Members of the Court of Auditors shall be appointed for a term of six years. The Council,
after consulting the European Parliament, shall adopt the list of Members drawn up in accordance with
the proposals made by each Member State. The term of office of the Members of the Court of Auditors
shall be renewable.
They shall elect the President of the Court of Auditors from among their number for a term of
three years. The President may be re-elected.
3. In the performance of these duties, the Members of the Court of Auditors shall neither seek nor
take instructions from any government or from any other body. The Members of the Court of Auditors
shall refrain from any action incompatible with their duties.
4. The Members of the Court of Auditors may not, during their term of office, engage in any other
occupation, whether gainful or not. When entering upon their duties they shall give a solemn
undertaking that, both during and after their term of office, they will respect the obligations arising
therefrom and in particular their duty to behave with integrity and discretion as regards the acceptance,
after they have ceased to hold office, of certain appointments or benefits.
5. Apart from normal replacement, or death, the duties of a Member of the Court of Auditors shall
end when he resigns, or is compulsorily retired by a ruling of the Court of Justice pursuant to
paragraph 6.
The vacancy thus caused shall be filled for the remainder of the Member's term of office.
Save in the case of compulsory retirement, Members of the Court of Auditors shall remain in office
until they have been replaced.
9.5.2008 EN Official Journal of the European Union C 115/169
6. A Member of the Court of Auditors may be deprived of his office or of his right to a pension or
other benefits in its stead only if the Court of Justice, at the request of the Court of Auditors, finds that
he no longer fulfils the requisite conditions or meets the obligations arising from his office.
7. The Council shall determine the conditions of employment of the President and the Members of
the Court of Auditors and in particular their salaries, allowances and pensions. It shall also determine
any payment to be made instead of remuneration.
8. The provisions of the Protocol on the privileges and immunities of the European Union
applicable to the Judges of the Court of Justice of the European Union shall also apply to the Members
of the Court of Auditors.
Article 287
(ex Article 248 TEC)
1. The Court of Auditors shall examine the accounts of all revenue and expenditure of the Union.
It shall also examine the accounts of all revenue and expenditure of all bodies, offices or agencies set up
by the Union in so far as the relevant constituent instrument does not preclude such examination.
The Court of Auditors shall provide the European Parliament and the Council with a statement of
assurance as to the reliability of the accounts and the legality and regularity of the underlying
transactions which shall be published in the Official Journal of the European Union. This statement may
be supplemented by specific assessments for each major area of Union activity.
2. The Court of Auditors shall examine whether all revenue has been received and all expenditure
incurred in a lawful and regular manner and whether the financial management has been sound. In
doing so, it shall report in particular on any cases of irregularity.
The audit of revenue shall be carried out on the basis both of the amounts established as due and the
amounts actually paid to the Union.
The audit of expenditure shall be carried out on the basis both of commitments undertaken and
payments made.
These audits may be carried out before the closure of accounts for the financial year in question.
3. The audit shall be based on records and, if necessary, performed on the spot in the other
institutions of the Union, on the premises of any body, office or agency which manages revenue or
expenditure on behalf of the Union and in the Member States, including on the premises of any natural
or legal person in receipt of payments from the budget. In the Member States the audit shall be carried
out in liaison with national audit bodies or, if these do not have the necessary powers, with the
competent national departments. The Court of Auditors and the national audit bodies of the Member
States shall cooperate in a spirit of trust while maintaining their independence. These bodies or
departments shall inform the Court of Auditors whether they intend to take part in the audit.
C 115/170 EN Official Journal of the European Union 9.5.2008
The other institutions of the Union, any bodies, offices or agencies managing revenue or expenditure
on behalf of the Union, any natural or legal person in receipt of payments from the budget, and the
national audit bodies or, if these do not have the necessary powers, the competent national
departments, shall forward to the Court of Auditors, at its request, any document or information
necessary to carry out its task.
In respect of the European Investment Bank's activity in managing Union expenditure and revenue, the
Court's rights of access to information held by the Bank shall be governed by an agreement between
the Court, the Bank and the Commission. In the absence of an agreement, the Court shall nevertheless
have access to information necessary for the audit of Union expenditure and revenue managed by the
Bank.
4. The Court of Auditors shall draw up an annual report after the close of each financial year. It
shall be forwarded to the other institutions of the Union and shall be published, together with the
replies of these institutions to the observations of the Court of Auditors, in the Official Journal of the
European Union.
The Court of Auditors may also, at any time, submit observations, particularly in the form of special
reports, on specific questions and deliver opinions at the request of one of the other institutions of the
Union.
It shall adopt its annual reports, special reports or opinions by a majority of its Members. However, it
may establish internal chambers in order to adopt certain categories of reports or opinions under the
conditions laid down by its Rules of Procedure.
It shall assist the European Parliament and the Council in exercising their powers of control over the
implementation of the budget.
The Court of Auditors shall draw up its Rules of Procedure. Those rules shall require the approval of
the Council.