Rhein on Energy and Climate

This simple truth has finally become evident; but it took the Greek financial crisis to carry the message home.

In a 12 page communication of May 12th the EU Commission draws the appropriate policy conclusions for the EU and member states.

Basically, the Commission insists on deepening and broadening the existing surveillance mechanisms of member states` fiscal and budgetary policies. After the exorbitant rise of public debt in most member states the EU must pay more attention to public debt levels. It must also take a much closer look at current account deficits and diverging trends in productivity and wages between member states. Avoiding excessive divergences in productivity and wages is crucial for the cohesion for the euro-area and the EU and as a whole. In the past 10 years the EU has ignored this important aspect of internal cohesion.

The Commission therefore insists now on introducing an ex ante assessment of all relevant economic data to detect in time potential imbalances and give member states more time to address them.

To that end, it proposes to introduce a “European Semester”. From January to June the Eco-Fin Council should review and identify the main economic policy challenges and give policy guidance to member states and the Union.

Such guidance should be given when national budgets – for the following year – are still in a preparatory phase, before they have been submitted to parliaments. To the extent possible both the European Parliament and national parliaments should participate in this exercise, which aims at placing national budgets into the wider European framework of growth, convergence and potential imbalances.

The purpose of the ex ante assessment is a critical review of the consistency of national budget projections with those of other member states. If such a mechanism had been in place in 2005 and the Commission had disposed of correct economic and financial data Greece’s unsustainable path would have been visible to everybody and allowed to impose corrective measures in time.

It is incomprehensible how the German Foreign minister and other European politicians can conclude that a thorough ex ante scrutiny of member statesˆ economic and budget projections will undermine the budget authority of national parliaments.

Their freedom of action is, course, limited by the provisions of the EU Treaty, the Stability and Growth Pact. National parliaments are no longer entitled to indulge in excessive budget deficits or unsustainable public debts. The Greek crisis has amply demonstrated the need for peer review from other member states to ensure more internal economic cohesion and prevent a collapse of the common currency.

Brussels, 15.05. 10 Eberhard Rhein

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