Economic co-ordination

: (Photo: EU Commission)

Economic co-ordination

The Euro Countries have adopted a Euro Pact for coordination of salaries, pensions and social benefits. It can be implemented through Article 136 TFEU permitting decisions to be taken with qualified majority vote only.

See Euro Pact.

The EU have also decided a so-called European Semester where draft national budgets are examined in Brussels each spring before their adoption by national parliaments.

The Lisbon Treaty has a special Article 5 TFEU on The Coordination of Economic and Employment Policies. A qualified majority of the member states can adopt measures to create a framework for the coordination of economic policies of the member states.

Common measures are limited by the ceiling on own resources - currently 1.27 % of EU Gross Product, which can only be changed with the approval of all EU Governments.

A special Passerelle clause in the Lisbon Treaty may be used to change decision-making from unanimity to qualified majority for matters of taxes and more own resources for the EU.

Although the member states that have adopted the Euro (the Eurozone) share the same currency, much economic policy, in particular tax, spending and budgetary policy, as well as income and wage policy, is not decided jointly, but by the member states’ governments.

The Treaty of Maastricht and the Lisbon Treaty require Eurozone governments to conduct their general economic policy in a manner designed to avoid inflation within the zone. Governments that run excessive budget deficits and spend more than their income may have fines imposed on them under the Stability and Growth Pact and now under the Stability Treaty.

There have been calls by federalists and others for Eurozone members to establish a proper fiscal union with joint control of tax and spending across the Eurozone in addition to a monetary union. This would mean automatic transfers from richer to poorer EU countries through a common tax and public spending system, just as happens from richer to poorer areas at national state level.

All sovereign states are both fiscal and monetary unions capable of combining the widest possible mix of economic tools.

Notes

Some economists are "monetarists". They believe that economies should only be controlled through varying the amount of money in circulation.

The British economist John Maynard Keynes advised expanding the economy (i.e.cutting taxes and/or increasing public spending so as to raise the demand for goods and services) during difficult economic times.

This is very difficult to do within the EMU because tax and spending decisions are taken primarily at national level and because of EU fines imposed for overspending.

Instead of common economic policies, the EU has established voluntary means of economic co-ordination through the so-called Lisbon, Cardiff and Köln processes.