The truly revolutionary element of the new phase of Economic and Monetary Union is the economic governance of the eurozone. The monetary dimension, discussed in this column yesterday, is essential and we can understand that it has been the subject of the most difficult negotiations (because it immediately involves operational commitments) and has been in the media limelight. The real innovation, however, is located in the co-ordinated management of economic policies and in the strengthening of rules in this domain. Nonetheless, nothing is definitive on this subject: the orientations are (or appear) clear enough, the mechanisms are strengthened, surveillance of budgetary deficits has become stricter but, on the ground, everything remains to be done. Firstly, the preliminary question persists: are the different disciplines that common governance of a single currency implies appropriate for all the different countries of the eurozone? Do the cultural, historic and factual differences make homogenous behaviour practically impossible in a framework where monetary devaluations are, by definition, impossible? Only the future will be able to answer these questions.
There are many different questions and we can make a brief summary of the situation:
1. New rules. The EU has considerably speeded up the preparation of many necessary decisions. The European Parliament will soon vote on the texts on supervision and then negotiate with the Council (and this is not going to be easy). The Council is currently voting on the rules applicable to hedge funds, a subject on which the position of the United Kingdom diverges from most of the other member states. Nevertheless, the EU cannot go forward alone: a large part of the new disciplines will require an international character if we want to avoid any distortion. This requires time (and compromises?).
As for the rating agencies, the criticism of the way they work has been unanimous but the creation of a truly European rating agency (not like Fitch, which is only a rating agency in theory) is extremely complex. If such an agency were accountable to the political authorities or the ECB, who would trust the ratings they provide?
2. Reduction in budgetary deficits. According to several observers, the pace currently planned is unrealistic. For Greece in particular, a deficit reduction corresponding to half of what has been announced would already be considered as a success. The questions being posed are partly political and partly social and involve responses from political forces and trade unions, in addition to public opinion with regard to the efforts and sacrifices required. They are also, above all, economic: reducing public spending in an effort to reduce deficits is at risk of slowing down economic activity and therefore stemming its relaunch. Certain political forces and economists have announced huge difficulties from this point of view because without growth, the return to budgetary balance is considered as being impossible. In other words, how can budgetary rigour be reconciled with the return to growth? There is no uniform remedy.
3. Responsibility for making decisions. Respect for budgetary discipline implies that the essential economic decisions are made in common, within the Community framework. This principle is broadly accepted by all, but putting it into practice is both politically and legally complex. Is a revision of the Stability Pact possible without amending the Maastricht Treaty? And would this be sufficient? Can the European Council assume the role of economic government as envisaged by its president, Herman Van Rompuy, and meet up every time that it is necessary for a eurozone summit, while leaving the countries that are not part of it on the sidelines? How can its decisions be made binding?
4. Role of national parliaments. The idea that the annual budgets of member states be subject to a preliminary evaluation as part of the Community framework, before they are subject to national approval, has provoked some sharp reactions in both European and national parliamentary circles. We can understand it because discussion and approval of the budget by parliamentarians represents an essential element of democratic regimes. At the same time, however, it should be recognised that a European debate about budgets that have already been approved would not be very useful. The positive aspect of the polemic on this subject involves the co-operation observed between national parliaments and the European Parliament. This is a positive development that should be underlined because it goes beyond the budgetary framework. The epoque of jealousies and distrust between the EP and the member states' parliaments is a thing of the past and prospects in this connection are encouraging - this is important
This brief outline of the situation has not introduced anything new (see the following pages for the most recent developments at the Council and Parliament). Its objective is mainly one of paving the way for other more precise and specific comments in the next few days. (F.R./transl.fl)