Reviewing the Institutional System of Fiscal Policy Coordination

Abstract

Since Barre and Werner’s plans in the 1960s and 1970s European countries have focused on designing the optimal relationship between European and national economic policy-making. Although the consensus on the common monetary policy was quickly reached following the start of the Internal Market programme in 1985, integration in fiscal policy did not receive such a determined and enthusiastic response in the 1980s and 1990s. In the EMU era, the desire to coordinate national fiscal policies has, nevertheless, arisen among Member States from the fact that fiscal spill-overs across the participating national economies in the monetary union could affect both positively and negatively the functioning of the monetary union and the achievement of a stabilised economic environment for long-term employment and growth. Member States have thus agreed on establishing additional coordination models and mechanisms for national fiscal policies in EMU. However, as the current situation between EU institutions and Member States in fiscal policy coordination implies, the immediate future of the relationship between fiscal policy coordination and national commitments will be crucial for achieving the fundamental aim — to have a successfully functioning EMU.