John Flemming

Fiscal Policy and Macroeconomic Stabilisation in the Euro Area: Possible Reforms of the Stability and Growth Pact and National Decision-Making-Processes

The recent economic-policy debate in the EU has largely focused on fiscal policy and the Stability and Growth Pact. The reason is the current budgetary problems of some member states. Portugal breached the three-per cent-of-GDP deficit ceiling in 2001 and 2002. Germany breached it in 2002, and may also do so in 2003. France and Italy have abandoned their commitments to earlier agreed budget objectives and there is a clear threat that they may violate the deficit ceiling, too. These events have contributed to a revival of the debate on the fiscal policy framework in the EU. The European Commission has recently proposed a number of changes in the Stability and Growth Pact (European Commission 2002b). There have also been calls for more fundamental revisions of the EU fiscal policy framework including proposals to scrap the Stability and Growth Pact altogether (see, for example, Financial Times 2002a, b, c; The Economist 2002; De Grauwe 2002; or Walton 2002).

Rethinking Subsidiarity in the EU: Economic Principles

The European Union (EU) is currently facing major challenges, since the enlargement to East Central European and some other countries necessitates considerable changes in the structure of decision-making and the operation of the union. The establishment of the Economic and Monetary Union (EMU) and the introduction of the euro as the common currency in EMU countries testify to a stride towards deeper political integration. These developments suggest that a reconsideration of the principles of public decision-making is timely and they have led to the establishment of the European Convention, which will submit its proposals to the European Council sometime in 2003. The tasks of the Convention concern the division of competence between member states and the Union, better definitions of tasks for EU institutions, coherence and efficiency of EU external action and democratic legitimacy of the Union.1

Welfare to Work

Social policy evens out the distribution of income. It prevents social unrest, it satisfies the taxpayers’ sense of justice and it insures against random variations in people’s lifetime careers. Ideally, it insures risks that are not privately insurable, either because risk markets suffer from adverse selection or because private insurance comes too late in a person’s life, when the veil of ignorance has already been lifted.