Daily Archives: October 7, 2014

Democratising Europe | Is EU’s Competitiveness Pact Doomed?

The failure of the German government to pass a Competitiveness Pact might mean the beginning of the end of German supremacy in European fiscal policy making.

Shaping the project

In October 2012, the Presidents of the Eurogroup, the European Commission, the European Central Bank and the European Council (the ‘Big Four’) proposed that eurozone states should enter into ‘arrangements of a contractual nature’ for the purpose of closer coordination of their economic policies. In January 2013, in her speech at the Economic Forum in Davos, German Chancellor Angela Merkel mooted the idea of a ‘pact for competitiveness’. At the end of February, the European Commission presented a proposal for a ‘Convergence and Competitiveness Instrument’. In a joint paper released in June, the French and German governments called, among other things, for contractual arrangements for competitiveness and growth. And now the Council of the EU is negotiating on ‘Partnerships for Growth, Employment and Competitiveness’. These are many terms for one and the same project, namely a kind of troika regime for the whole euro area.

The driving force behind this project is the German Federal Government, and it may be regarded as Mrs Merkel’s pet project. For the first time, however, the ability of the German Government to drive the EU crisis-management agenda seems to be reaching its limits. Time and again, decisions on the competitiveness pact have been postponed. The big breakthrough was supposed to be made at the recent summit of EU heads of state and government in December 2013. Instead, they postponed further discussion until October 2014 – a significant blow for Angela Merkel.

via Democratising Europe | Is EU’s Competitiveness Pact Doomed?.


This provision reflects the ambivalence of harmonisation in EU social policy. Harmonisation is put forward as an objective to be made possible. However, it appears that harmonisation is to ensue as the passive result of the functioning of the common market, which favours harmonisation. The active use of procedures in the Treaty and approximation of laws is less clearly to be the instrument of harmonisation. In other words, as originally envisaged, harmonisation is a market process, not a legal process.

This reflects another ambivalence inherent in the concept of harmonisation: whether harmonisation of laws or harmonisation of substantive conditions is at issue. The harmonisation of laws does not necessarily imply the harmonisation of substantive conditions. Put differently, if harmonisation of conditions is aimed at, then different laws may be required. This is the result of a combination of two factors.

via Harmonisation.

Macroeconomic Imbalances Procedure – European Commission

Macroeconomic Imbalances Procedure

The Macroeconomic Imbalances Procedure (MIP) is a surveillance mechanism that aims to identify potential risks early on, prevent the emergence of harmful macroeconomic imbalances and correct the imbalances that are already in place.

Brief description

The annual starting point of the MIP is the Alert Mechanism Report: Based on a scoreboard of indicators, it is a filter to identify countries and issues for which a closer analysis (in-depth review) is deemed necessary.

via Macroeconomic Imbalances Procedure – European Commission.

Stability and Growth Pact – European Commission

Stability and Growth Pact

The Stability and Growth Pact (SGP) is a rule-based framework for the coordination of national fiscal policies in the European Union. It was established to safeguard sound public finances, based on the principle that economic policies are a matter of shared concern for all Member States.


The SGP contains two arms – the preventive arm and the corrective arm. The preventive arm seeks to ensure that fiscal policy is conducted in a sustainable manner over the cycle. The corrective arm sets out the framework for countries to take corrective action in the case of an excessive deficit.

The cornerstone of the preventive arm is the country-specific medium-term budgetary objective (MTO), defined in structural terms (i.e. in cyclically adjusted terms and net of one-off and other temporary measures). Member States outline their medium-term budgetary plans in stability and convergence programmes (SCP), which are submitted and assessed annually in the context of multilateral fiscal surveillance under the European Semester.

via Stability and Growth Pact – European Commission.

Glossary – European Commission


Automatic stabilisers

Features of the tax and spending regime, which react automatically to the economic cycle and reduce its fluctuations. As a result, the budget balance in per cent of GDP tends to improve in years of high growth, and deteriorate during economic slowdowns.

Budget balance

The balance between total public expenditure and revenue in a specific year, with a positive balance indicating a surplus and a negative balance indicating a deficit. For the monitoring of Member State budgetary positions, the EU uses general government aggregates. See also structural budget balance.

via Glossary – European Commission.