A Budget for the Euro Area: Objectives, Procedures and Institutions

BY DOMENICO MORO is a member of the national board of the Movimento Federalista Europeo (MFE) and of the Federal Committee of the Union of European Federalists (UEF). He is a former director of the Altiero Spinelli Institute for Federalist Studies.

INTRODUCTION

The origin of the economic and financial crisis afflicting the European Union (EU) is political, not economic.

The fact that the crisis continues to bite in Europe, whereas the USA and Japan, albeit slowly, are overcoming it, shows that the market penalises the EU not for its sovereign debt, but rather for the absence of any European federal sovereignty. The market punishes the intergovernmental method of eurozone economic governance, which is also proving to be increasingly damaging to the individual member states. In the absence of a European federal budget to support a policy of economic growth and by the constraints of the Stability and Growth Pact (SGP) and the fiscal compact, if the European economy as a whole is in recession, member states inevitably find themselves in persisting with pro-cyclical recessionary policies, thereby triggering a vicious cycle of ever-worsening economic problems. On the other hand, the states like Germany are reluctant to pursue a development policy, fearing to find themselves in difficulty if their economic growth slows down.

Paradoxically, the European governments have continued to seek answers through intergovernmental methods, even stepping outside the framework of the existing Treaties, thereby compounding the European democratic deficit. However, since 2012 the awareness of the inadequacy of existing measures and of the institutional framework, has been growing in the European institutions and among member states. There is an ongoing debate on the long-term sustainability of the eurozone and the ultimate objectives of a fiscal union, economic union and eventually a political union, even though the nature of these unions is still unclear. The European institutions have started to acknowledge that the eurozone must have its own budget. This paper analyses the measures possible to take within and outside the Treaties to strengthen the economic governance of the eurozone, before finally discussing the prospect of equipping it with its own budget, and analysing its objectives, the procedures possible to establish it, and the institutional mechanisms to manage it.