Euro crisis: a “strong convergence of views”

The Irish Times’ Arthur Beesley reports that EU Finance Ministers “have resolved to submit draft budgets for the approval of their counterparts and the EU Commission before unveiling them in national parliaments.”

European Council president Herman Van Rompuy, who chaired the meeting on economic governance, said there was a “strong convergence of views” on the measures required to strengthen how the EU polices and enforces budgetary rules.

The meeting followed a separate gathering here of ministers whose countries share the euro, at which they signed off signed off on the final details of a €440 billion loan scheme for distressed single currency members.

The ministers’ agreement in principle to open their budgets in Brussels before parliament marks their endorsement of a key proposal from economics commissioner Olli Rehn to strengthen budgetary coordination.

Mr Van Rompuy said the process, which is subject to the approval of EU leaders, would strengthen parliamentary scrutiny of budgets as it would put the broad parameters of the plans through a rigorous credibility test.

The review process — likely to take place in the first half of the year — would examine the “main assumptions” relating to growth, inflation, revenues, expenditure and deficit levels, he said.

Is there now “unity at present in the euro zone about what needs to be done”?

Perhaps…  The BBC notes

The UK government said it would reject this plan, but EU officials said a compromise had been worked out.

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  • Glencoppagagh

    On the face of it, a massive encroachment on national sovereignty. However, it doesn’t mean that EU states will have to rein in public spending, they’ll just have to finance more of it through taxation instead of borrowing.

  • It is based on the idea that parliaments are just rubber stamps for the efforts of governments across the continent. Of course, this may be increasingly true but it shows a remarkable contempt for proper procedure. And it will probably be toothless anyway – we all know what happened when France and Germany failed to measure up to the Stability and Growth Pact’s borrowing limits…

  • Itwas SammyMcNally whatdoneit

    Oh Dear, exciting opportunity for the wobbly-Liberals and mad-dog-right-wing-Tories to enjoy a little spat.

  • Regardless of the present crisis surely this was always going to happen?

    It is a massive incursion, but those joining the Euro could be said to have given tacit approval to such a move. Im not sure if its good or bad. I like to know who to blame and be able to vote them out next time…

  • There’s a good argument for having a method to keep national deficits under control. But this isn’t the method. We need to tame deficits the same way we tamed inflation, and that means limiting the freedom that governments have to borrow. Many states in the US have constitutions that require a balanced budget – that would probably be going too far, but currently there’s no legal recourse to stop a government borrowing itself into bankruptcy.

  • Pete Baker

    “Many states in the US have constitutions that require a balanced budget – that would probably be going too far”

    Plus the nation states in the EU would have to impose such a requirement on themselves.

    Unless the EU was granted the authority to do so…

  • Budget control was one of the single currency’s conditions, but it was both inflexible and (it turned out) unenforceable. But it’s not beyond the bounds of possibility that at least some EU states would volunteer. After all, it’s not a good idea to let your government go bankrupt, single currency or not. If Greece was made an example of – i.e. if you go bankrupt, you’re out – then in the long run only those states which had a mechanism for preventing bankruptcy would be left in. Brutal, yes, but better than printing money to fill the bottomless pit in the banking system.

  • wild turkey

    folks

    we have got to the point, where there must be a reconcilation between the fundamental contradiction of seperate nation STATES having disparate the fiscal policies (tax, spend ,borrow) and the hegemony of monetary policy (interest rates, money supply) as envisaged by the euro.

    it is either a federal europe, or within a relatively short span time, back to seperate national currencies and all that implies

    for what is it worth, history does note that in the 1780’s the original ‘Articles of Confederation’ were not seen to be a functional method of governance…. and a federal constitution for ‘These United States’ emerged…. and then there was the dollar. yeah, i know, some smart ass will pull me up on the origin of the ‘dollar’

  • Pete Baker

    “If Greece was made an example of – i.e. if you go bankrupt, you’re out – then in the long run only those states which had a mechanism for preventing bankruptcy would be left in.”

    That’s a big if. Not that I disagree. I just don’t see the political will to do it.

    The alternative, attempting to secure stronger powers for the EU Commission, seems to be much more attractive to those concerned.

  • Anonymous

    So what happens to those states with balanced budget amendments when shit hits fan? They cut savagely and make things worse “50 Herbet Hoovers” and then the Federal Government bails them out, at least partially. It’s not a good idea, period.

    This is alarming in terms of shifting power to an undemocratic EU.

  • Anon,

    US states spend much less as a proportion of total government spending than nation states in the EU – there’s still a lot of federal counter-cyclical spending. In the EU a balanced-budget condition (effectvely a 0% deficit ceiling, compared to the SGP’s 3%) would be insanely strict. The problem with such restrictions is that they are pro-cyclical. In order to insure against state bankruptcy, there must be a much tighter condition during growth to force public debt to be actively paid off. Gordon Brown’s famous (and quickly forgotten) golden rule was a step in this direction, but was so vaguely defined as to be worthless.

  • Anon

    Andrew

    European nation states and are not US states, and the EU is not the Federal Government. It’s apples to oranges comparison. Medicare, Social Security, Defense spending is all handled federally in the states. You can’t compare.

    Anyway, teh European populace rejected the last treaty multiple times when given the chance, and I suspect that even in current times a referendum on effectively giving away all your sovereignty would bomb in most places.

  • Mack

    That’s not so hard to engineer. Any time a country needs help, you make the help available only once the country has introduced the required reforms – if they have not done so already.