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Economic Policy Coordination in the Economic and Monetary Union

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Economic Policy Coordination in the Economic and Monetary Union

From Maastricht via the SGP to the Fiscal Pact

CEPS,

15 min read
10 take-aways
Audio & text

What's inside?

This scholarly précis explains why the euro zone’s macroeconomic policies are so troubled.

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Editorial Rating

6

Qualities

  • Comprehensive
  • Background

Recommendation

How did the integration of Europe’s various national economies become such a mess? Researcher Jørgen Mortensen’s short primer offers a detailed history of contemporary European economic policy, the role of the Economic and Monetary Union (EMU), and the recent ratification of the Treaty on Stability, Coordination and Governance. This is not an easy story to tell; frankly, it’s an alphabet soup of acronyms slow cooked by a bureaucracy that makes the United States’ current political gridlock look speedy by comparison. But Mortensen’s report from The Centre for European Policy Studies succeeds in laying out the complexities of the experiment in multinational political economy that is EMU. Despite its density, getAbstract recommends this treatise to international economic policy makers, investors and corporate finance executives as a refresher on EMU and its seemingly never-ending stream of challenges, past, present and future.

Summary

Past Is Prologue

Early in 2013, the euro zone agreed on a treaty – prolixly titled the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union – that capped the debt and spending of its member governments and set penalties for violators. Only the United Kingdom and the Czech Republic declined to ratify the document, more prosaically called “the Fiscal Pact.” Fully understanding the impetus for and the origins of the Fiscal Pact requires grounding in the history of European efforts to achieve fiscal and monetary union.

The 1957 Treaty of Rome established the European Economic Community (EEC). It centered on the formation of a common agricultural policy and a customs union among the founding members. However, by the early 1960s, participants chose to proceed with “soft coordination” that would encompass a greater degree of economic policy cooperation. In 1964, a Committee of Central Bank Governors and a Medium-Term Economic Policy Committee began their largely advisory work. For years, the concept of economic collaboration faced few challenges as economies grew and fiscal conditions improved. With that promising background, in 1971 European...

About the Author

Jørgen Mortensen is an associate senior research fellow at the Centre for European Policy Studies and a research fellow at the Centre for Social and Economic Research.

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