Tag Archives: Fiscal Compact

Billy Mitchell’s various interesting points

In this link from yesterday.

On Syriza: it seems to be clear that Syriza has 149 seats in Parliament, which is two short of an absolute minority. I think Mitchell has a good point about Syriza being contradictory regarding its goals. But there is another issue: Syriza is a kind of coalition of various parties, and although I do not profess to know how the Greek political system works, I’d say it is a challenge to get 149 parliamentarians ready for work, given the party structure and the large number of new politicians needed. For the sake of Greece, I hope Syriza will manage internal as well as external pressures, because if it implodes, then voters will surely move to the Golden Dawn nazis.

Regarding the ‘letter of economists’ he writes:

Why not just explicitly state – the European Commission should abandon fiscal rules specified under the Stability and Growth Pact (SGP) and its antecedents – the Fiscal Compact, the Two- and Six-Packs.

There cannot be a pro-growth framework while these fiscal rules are enforced in any way. The GFC proved that the impact of the cyclical effects on the fiscal balances (that is, the loss of tax revenue etc due to the loss of output and employment) were sufficient to breach the 3 per cent limits. (my bold)

Those ‘breaches’ led to the fiscal austerity being imposed.

Further, most Eurozone nations will not be able to run the necessary magnitudes for their fiscal deficits (to favour ‘pro-growth’) under the current terms that restrict the ECB – the monopoly-issuer of the euro – from funding such deficits.

I think this is a very important thing to say out loud. It needs repeating. But at the same time it also makes you wonder what politicians (starting with those who designed Maastricht) were thinking.

I will continue my own path thinking about competitiveness, labour market relations and the EMU. There is change in the air, and it is quite scary.

Sunday the 25th and what next in Europe?

Important. Reuters has good reporting on the EU of late!

Subsidiarity: Commission budget powers versus nations own determination of welfare state issues

Typical social security benefits include old age pension, survivor’s pension, disability benefits, sickness benefits, birth grant, unemployment benefits, family benefits or health care.

Member States set their own social security rules in line with their own circumstances. The EU coordinates social security rules (Regulations (EC) No 883/2004 and 987/2009) only to the extent necessary to ensure that EU citizens do not lose their social security rights when moving within the EU.

This means that the host country’s laws determine which benefits are provided for, under which conditions they are granted (such as taking into account the period of work), for how long and how much is paid. Benefit entitlement varies therefore in different EU countries.

(January 2014, found here)

I woke up with a thought this morning. From my studies at the University of Twente, I suddenly remembered the principle of subsidiarity and the relation between the EU and member states regarding social security – that is, social security is an issue that remains a national prerogative although, as can be seen from the quote above, the EU has policies (hard and soft law) regarding e.g. labour market equality, which to some extent all relate to the core ideas of the Single Market and free movement of workers etc.

Now, it kind of hit me like a brick, but:

How can this principle (of member states setting their own rules) be upheld while at the same time the Fiscal Compact and all those other budget rules now enable the Commission to reject national budgets, i.e. de facto give it power over how national governments spend their money?

Given that social security has a tendency to become a bigger budget post in times of economic crisis, not even thinking of the effects of aging populations, I have difficulty to see how it is still possible to claim that countries are anymore sovereign on the issue of social welfare states. In the face of the rules countries have to cut budgets either pre-emptively or as a corrective move. Maybe the Commission does not say exactly HOW to cut the budget but I don’t see any of this anymore as exclusive to the member state, as the Commission sets the limits to the budget. But then again it has to be remembered that the Eurozone member states themselves accepted these rules.

Is this the ultimate victory of ‘Down with the welfare-state’-neoliberalism? I have to read more details about this issue but I am not quite happy with what may be a consequence of these Fiscal Compacts and Six-Packs.

UPDATE: this Finnish blog post seems to argue broadly the same thing but more from the Finnish context, and in much more detail.

“The European Balanced Budget Disaster”

“The European Balanced Budget Disaster” http://feedly.com/k/1ceRVxW

How long will it take until the Eurozone authorities and countries recognize that the conditions of the “fiscal compact” are unattainable in the sense that—whilst some countries are able to have a budget balanced at “potential output”—most cannot? Continuing to insist that fiscal austerity be pursued to balance budgets will bring misery. But now that the structural balanced budget requirement is written into national constitutions with penalties for failure to do, how will the counties signed up to the Treaty wriggle out of those commitments

Something else: the Dutch economy and a possible housing bubble deflating?

As I am Dutch, i do follow the Dutch news to some extent. I found some news that kind of confirmed that things are not so well in one of the ‘core’ core eurozone countries:

The other Dutch disease Although this is already a month old it seems that the Dutch economy is hit harder by the eurocrisis than the German economy.

Dutch show how not to run housing policy And this is one of the reasons why. Now, since 2011 housing prices have dramatically declined, but thanks to the earlier problems of the Dutch financial sector, the banking sector is now simply stuck – banks don’t lend money, so people can’t buy, which means it is impossible to sell, which makes it a problem that people have expensive mortgages from the time of rising housing prices.

Also exports and imports through Rotterdam are not as big as previously, and as a whole, the Netherlands is quite sensitive to changes in the European economic tide. On top of that are issues like transport (traffic jams).

I don’t know if the Netherlands will lose its AAA-status but it nonetheless starts to feel uncomfortable for the current government that they aligned themselves with Merkel’s economic policy and wholly supported the new Fiscal Compact.