Rhein on Energy and Climate

EU political leaders love to create new financial instruments. The latest example of this inclination is the proposal by European Council President Van Rompuy to endow the euro-area with a “fiscal capacity”, meant to help its members soften “asymmetrical shocks” or offer them incentives to tackle painful socio-economic reforms like phasing out wage indexation, making the labour market more flexible or raising the retirement age.

Member states have reacted to this suggestion have been positive to critical.

The UK finds it a good idea, hoping it will reduce the volume of the EU budget and its financial contribution. Poland has warned of the risk of deepening the division between euro- and non-euro countries; and Germany seems to the idea of a fund to support reforms in the euro-area.

We can thus expect long technical discussions on an old issue, for which the EU has never been able to give the right answer: how to make the best use of EU funding?

Before the end of the year, the EU will have to approve its multi-annual financial framework (MFF) for 2014-20 with an overall volume in the order of € 1000 billion.

Apart from direct payments to EU farmers, “cohesion funds” for regional and social development are the biggest item. So far, these funds have not been effective instruments for reforms.

Instead of establishing a new complex fiscal capacity for the euro-area, the heads of government should set aside a big chunk of the cohesion funds for the contractual “reform partnerships” between EU and individual members states, which Van Rompuy has proposed.

The modalities of the cohesion funds would have to be adapted to fit “reform partnerships”, both in the euro-area and beyond. That could easily be done by the Commission.

Heads of government should focus on strategic issues. But too often they invent complex gadgets in order deviate attention more basic issues.

Brussels 18.10. 2012 Eberhard Rhein

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