Reasons, instruments and the question of democratic legitimacy

The EMU has been designed without an instrument for automatic fiscal stabilization on the European level. We argue that the macro-economic dimension should be taken into account more strongly in the debate on EU and EMU budgetary governance in order to contribute to the development of a coherent and efficient budgetary system. Based on new empirical data, this article suggests that fiscal stabilisation on the national level has likewise worked insufficiently in the EMU. This is suboptimal if the EU seeks to reach its self-defined targets of the Lisbon Agenda. Recent theoretical contributions suggest that a positive macroeconomic environment is key to productivity growth and structural reform. There are hence strong economic arguments for rethinking the set-up for fiscal stabilization policies in the EMU. We assess the major weaknesses of the current EU and EMU budgetary systems and suggest three remedies to the underperformance of automatic stabilisers: making EU-expenditure sensitive to the cyclical situation of the recipient country, introducing an EU corporate tax upon the upcoming revision EU budget before 2013 and setting up a European unemployment scheme. The paper likewise discusses the legitimatory and institutional requirements of such a new EU budgetary system.

Contents:

• 1. Introduction
  • Three dispersed debates
  • Outline of the paper
• 2. Arguments for a coherent and efficient system
  • Interdependencies and spill-overs: The need for stabilization policies
  • The case for automatic stabilizers
  • Stabilization Policy: Experience in the first years of EMU
  • Explaining Europe’s failure to stabilize
  • Requirements of a coherent system
• 3. State of the art and the structure of a new budgetary system
  • The income side
  • The expenditure side in the 2007-2013 budgetary framework
  • Evaluating the budget – bringing stabilization in
  • Introducing a third pillar of public expenditure in the EU
• 4. Reformed budgetary procedures
  • Sources of legitimacy of the current EU budgetary system
  • Arguments to reform the budgetary procedures
  • Democratising the budgetary procedure
• 5. Conclusion
• Bibliography
• Appendix: Econometric Estimates