Study Six Points for a Stable Europe
The Fiscal Pact that was decided by heads of state and government will not lead Europe back to a new and robust monetary stability. Its capacities will not be sufficient to help the European Monetary Union regain its stability. For this the Fiscal Pact would lack the necessary regulations.
The Fiscal Pact that was decided by heads of state and government will not lead Europe back to a new and robust monetary stability. Its capacities will not be sufficient to help the European Monetary Union regain its stability. For this the Fiscal Pact would lack the necessary regulations.
A precondition for this is an alteration of the EU contract accepted by all member states. This is the result of a report published on 14th March, 2012 by a team of economists and legal scholars that was conducted for the Initiative for a New Social Market Economy (INSM).
While the fiscal pact does include some sensible regulations such as the obligation to introduce national debt breaks it lacks the necessary legal basis to guarantee ultimate stability. This is mainly due to the refusal of Great Britain and Czechoslovakia to back the fiscal pact as well.
“Like he Stability and Growth Pact before, the Fiscal Pact will probably remain a paper tiger“, says the chief-executive of the INSM Hubertus Pellengahr. According to Pellengahr, Great Britain and Czechoslovakia have to return to the negotiating table in order to transfer the Fiscal Pact into primary law. “Only if all 27 member states sign the contract will it achieve a legal basis and the capacity it needs”, explains Prof. Dr. Chirstoph Ohler, legal scholar and co-author of the study.
- Hubertus Pellenahr, Prof. Dr. Christoph Ohle and Prof. Dr. Andreas Freytag present the study in Berlin.
The scholars propose a six-point concept for a holistic framework inspired by market-based principles. “The politics of this crisis partially suspends the mechanisms of a market economy. The crisis, however, proved that there is no more effective disciplinary instrument for governments than the market”, explains the economist and co-author Prof. Dr. Andreas Freytag.
The six-point concept proposes a change in the regulatory law of financial institutions. According to the plan government bonds are to be weighted in the balances of the institutions. In this way the disciplinary function of the markets would be strengthened. Second, and just like the net new debt, the gross new debt would have to be monitored more closely. According to the study, there are enormous long-term risks in servicing old debts with new debts. Third, the net new debt of countries which do not improve their budgets in spite of looming sanctions would be the subject of the authorization by the Council of the European Union. Fourth, the authors propose to contractually fix the possibility of exiting the European Monetary Union as a last resort. This would diminish the blackmail potential of crisis countries. The fifth point regulates the handling of the permanent bailout fund ESM. Access to the means of this funds is to be conditional on meeting all reform conditions first and yet not being able to regain financial stability. With point six of the concept, the authors demand a growth strategy for Europe. According to this, structural reforms are to be targeted at enhancing the economic growth in the member states. “Sustainable growth is the key for reducing debts and for securing the stability in Europe”, says Hubertus Pellengahr.
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