EU Summit: Can a Fiscal Union Save the Euro?

At the end of January 25 EU states reached an agreement on debt brakes that will ensure their commitment to balancing their budgets. Should any country fail to honour its commitment, an automatic correction mechanism has been integrated into the rules. The introduction of debt brakes in national constitutions is to be reviewed by the European Court of Justice. Charles B. Blankart, Humboldt-University of Berlin, points out that the decisions cannot be implemented without regulatory deficiencies. Just like any other form of regulation, these rules also have loopholes. The European Council and Commission, for example, have not committed to abide by the debt prohibition rules that they are prescribing for their member states. Against this background, it is worrying that the Merkel-Sarkozy team should be attempting to enhance Brussel’s powers. For Peter Spahn, University of Hohenheim, the decisions regarding conditions for remaining within the monetary union have little bearing on the main problems of EMU: namely diverging wage costs and trade balances. In principle, fiscal policy reforms would not have made it possible to identify or prevent the current EMU crisis. A monetary union must offer more than mere austerity policies. Support for wage policies to overcome macroeconomic imbalances is what is needed. Henrik Enderlein, Hertie School of Governance, Berlin, sees combining the ESFS and the ESM as the last chance of finding a rapid solution to the crisis. According to Sebastian Hauptmeier and Fédéric Holm-Hadulla, ECB, the agreement reached on a new fiscal compact is essentially to be welcomed. However, it remains to be seen whether this compact will really be able to ensure the degree of monetary policy discipline required to ensure stable macroeconomic development in the euro area. This calls for effective implementation of the compact, especially at a national level. For Max Otte, University of Graz, the debt brakes ultimately replace the sovereign economic policy of individual states with automatic mechanisms and thus constitute an abdication of policy-making.