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Tuesday, January 31, 2012

State Fiscal Governance in the E.U.: Toward Balanced Union

At the end of January 2012, 25 of the 27 E.U. states (all but Britain and the Czech Republic) indicated at a meeting of the European Council that they would accept in principle (i.e., subject to ratification) a new limit of 0.5% of gross economic output over a complete economic cycle for the states’ “structural budget deficits” and strengthen the E.U.’s enforcement mechanism on states that breach that limit on deficits and 60% of gross output for accumulated state debt. The Wall Street Journal reported at the time that the “0.5% deficit limit would, if obeyed, mark a revolution in [the states’] fiscal policies, ending more than 30 years of steadily rising [state] debt.” This statement is immediately undercut, however, as the Journal describes the extent of the loopholes in the amendment.  The reader is left wondering whether the E.U. will use the proposed enforcement mechanisms, such as the ECJ imposing fines on states already hard up for cash, as well as whether fining a state government would make any difference.

                                       Sarkozy, Merkel and Monti at the European Council Meeting          
                                                              Philippe Wojazer/Reuters

The full essay is at "Essays on the E.U. Political Economy," available at Amazon.