Against the Wall: EU Governance Reforms

Abstract

The construction of the European Monetary Union and the policies followed since 1999 is responsible for the emerging deep imbalances among the member countries that made some countries vulnerable against the external shock of the global financial crisis. Since then, reforms of the governance system have been seen as necessary, but the design of reforms remained in the narrow realm of the initial institutional setting and hence, is doomed to fail. Even worse, part of the reforms will deteriorate the economic situation of the monetary union and will force the European integration project to ruin. This essay studies two of the major reform documents: the Euro Plus Pact and the Fiscal Compact. The latter is equipped with strong enforcement devices; my calculations of the impact on effective demand reveal a particular destructive effect on the European employment and output. The essay proposes three major attempts for overcoming the crisis: net capital flow management, coordinated fiscal actions, and trilateral wage coordination on the national level.