2015年-CEPS欧洲政策研究中心_The_case_of_the_disappearing_Fiscal_Compact_3页_622kb

The Case of the Disappearing Fiscal Compact Summary

Core Content

The document discusses the ineffectiveness of the Fiscal Compact, a treaty signed in 2012 to strengthen fiscal discipline among EU member states, particularly in the context of the euro crisis. Despite its formal adoption and incorporation into national legal systems, the Fiscal Compact has had little real impact on fiscal policy implementation.

Main Provisions of the Fiscal Compact

The Fiscal Compact includes two key provisions:

1. Structural Balance Requirement:

   • Member states must ensure their annual structural balance of general government adheres to a country-specific medium-term objective, with a lower limit of a structural deficit of 0.5% of GDP.
   • This structural deficit is defined as the actual deficit adjusted for the economic cycle and any one-time special measures.

2. Enforcement Mechanism:

   • If a country fails to comply with the medium-term objective or its adjustment path, a correction mechanism may be triggered by the Court of Justice of the European Union (CJEU).
   • The treaty also mandates that member states incorporate these provisions into their national legal systems, preferably at the constitutional level.

Key Findings

• Formal Compliance vs. Practical Ineffectiveness:

  • While the Fiscal Compact is formally adhered to, its impact on fiscal policy is minimal.
  • The 2015 budgets of France and Italy clearly violated the compact's rules, yet the European Commission accepted them after only minor adjustments, which were deemed sufficient despite being far from the required targets.

• Uncertainty in Structural Deficit Calculation:

  • The concept of 'structural budget' is central to the Fiscal Compact, but it is uncertain and subject to revisions over time.
  • There is no universally agreed method for calculating the cyclical adjustment, which leads to different estimates and potential disputes.

• Impact of Economic Conditions:

  • In periods of low inflation and high unemployment, the estimation of the non-accelerating wage natural rate of unemployment (NAWRU) becomes particularly uncertain, which affects the assessment of the cyclical position.

• Revisions in Cyclical Estimates:

  • Revisions in cyclical component estimates can be substantial, especially at economic turning points.
  • The Commission revises its own estimates every six months, which reduces the predictability and enforceability of the compact.

• Political Inconvenience and Non-Compliance:

  • The lack of enforcement and the flexibility in interpreting the structural deficit suggest that the Fiscal Compact is not a binding constraint.
  • It is violated as soon as it becomes politically inconvenient, indicating that legal frameworks alone are insufficient to enforce fiscal discipline.

Conclusion

The Fiscal Compact, although legally binding and formally adopted by most EU member states, has failed to significantly influence fiscal policy. Its inherent uncertainties in the calculation of structural deficits, flexibility in interpretation, and lack of real enforcement have rendered it ineffective. The document highlights the broader challenge of legalizing fiscal policy and the difficulty of enforcing fiscal discipline in practice, especially in the face of economic uncertainty and political considerations.

References

• Borio, C. (2013), "The financial cycle and macroeconomics: What have we learnt?", BIS Working Paper No. 395, Bank of International Settlements, Basel, December.
• Gros, D. (2012), "The Treaty on Stability, Coordination and Governance in the Economic and Monetary Union (aka Fiscal Compact)", CEPS Commentary, CEPS, Brussels, March.