Better safe than sorry : European fiscal governance

Abstract

The sovereign debt crisis induced a wide array of new institutions to reinforce European economic governance. The budget of the European member states is now subject of the European semester, which is part of the preventive arm of the Stability and Growth Pact as codified by and backed-up by the so-called Six-Pack and Two-Pack and backed by the Fiscal Compact that enable the Commission to issue, inter alia, country-specific recommendations before the budget is submitted to national parliaments. The country-specific recommendations are not binding, but will be hard to ignore by the member states in the long run unless the economy recovers. In this paper we are going to look at the efforts of the European Union to reinforce European fiscal governance, i.e. the coordination of the budgetary policy of the member states. More precisely, we will address the progress of the member states towards their Medium-Term Budgetary Objective as measured by the structural balance and Expenditure Benchmark as well as the implementation of the Country-Specific Recommendations in the field of fiscal policy, which are further strengthened by the Fiscal Compact by which the member states – with the exception of the Czech Republic and the United Kingdom – commit themselves to fiscal discipline, coordination and governance. The paper is geared to the assessment the country-specific recommendations in terms of goal-attainment and effectiveness and aims, by such, to deliver a contribution to the body of knowledge on European economic governance and fiscal consolidation.