Euromyths (10/10): You can do what you want, if you manage your budget
3 August 2012
De Groene Amsterdammer
With the entry into force of the fiscal pact, many argue that a state's prerogative to determine its income and expenditure will have all but disappeared. In the final article of its euromyths series, the Groene Amsterdammer assesses what room for manoeurvre states now have.
The Maastricht Treaty meant that the setting of interest rates, the influencing of inflation and other instruments of the central bank for managing the economy were transferred to the European Central Bank. This is known, and certainly no myth. But our budget was and, of course, remained a national matter. The supreme authority of the national government. Up to now.
“True sovereignty over our own fiscal policy disappeared during the debt crisis”, says Josef Janning, Director of Studies of the European Policy Centre. This is evident in Greece, which is under administration. Or in Ireland and Italy, which must meet stringent reform requirements. The party who pays (Germany) makes the decisions (what the other party has to cut back).
According to Janning, this applies just as much to the Netherlands. Due to the crisis all countries find themselves more strongly encapsulated in European regulations. In practice, the new budget treaty removes the last vestige of autonomy. There is a good reason why Angela Merkel called the treaty (which is to enter into force in 2013, if twelve countries ratify it) “a step in the direction of a political union”. For the Brits and the Czechs this was a reason not to join in.
The more assistance, the more stringent the supervision
What does it say exactly? In the first place, countries may no longer run a deficit – so no more three percent, but at most a half percent. Furthermore, if there is a deficit, ‘a correction mechanism will automatically’ enter into force. Countries will then have to make cutbacks on the basis of measures determined by the European Committee.
In December 2011 the German Constitutional Court reviewed the question whether such a treaty is contrary to the constitution – whether it was lawfully possible for an EU commissioner to dictate Germany's own budget. It was seen as a bothersome question, inconvenient at a time of crisis and need for assertive action. The escape clause is that ‘the prerogatives of the national parliaments’ remain in force. In other words, countries may themselves agree to the requisite cutbacks. The big question is how much freedom they have in this respect and how far Brussels will go in terms of substance: does the treaty only lay down the limits, or will the relevant EU commissioner also be determining how and where cutbacks are to be made.
The answer, according to all the experts: this depends on how bad things are in a country. The more assistance that is required, the more stringent the supervision, the less budgetary freedom and the more far-reaching, substantive and detailed the requirements.