Stability Pact Research Articles

Economic and Fiscal Governance: The Hardening of European Soft Law

The European Union’s new architecture of fiscal and economic governance can be difficult to understand. How do two legislative packages, a treaty, a strategy and a “European Semester” interact to shape member state policies? This paper argues, on the basis of a review and presentation of the new fiscal governance architecture, that what we see is a hardening of European soft law. The new European Union fiscal governance involves both tougher and more automatic sanctions for states that violate the Stability and Growth Pact, and an expansion of mechanisms of surveillance and Commission involvement in member state economic and fiscal planning. The result is planned to combine the information and constant surveillance of soft law with the judicial enforceability and tough sanctions of hard law.

Multi-country experience in delivering a joint course on software engineering – numerical results

<p class="Abstract">A joint course, created as a result of a project under the auspices of the ‘Stability Pact of South-Eastern Europe’ and DAAD, has been conducted in several Balkan countries: in Novi Sad, Serbia, for the last six years in several different forms, in Skopje, FYR of Macedonia, for two years, for several types of students, and in Tirana, Albania, in the form of a crash, 7-day course, for the last two years. In this paper, we will put an emphasis on the assessment methods used within these courses, and compare them with the ‘original’ course that has been conducted at the Humboldt University in Berlin for almost a decade. Having a good environment for comparisons we draw some conclusions about teaching software engineering in different environments.</p>

Regional Civil Security Cooperation in South Eastern Europe: The Case of Disaster Preparedness and Prevention Initiative

The paper aims to explore the quality aspect of Disaster Preparedness and Prevention Initiative as a regional organization in South Eastern Europe (DPPI SEE) striving to enhance the overall crisis management capacity in this crisis prone region.The research is based on secondary sources analysis and in depth interviews with stakeholders.The Disaster Preparedness and Prevention Initiative for South Eastern Europe is the only regionally owned initiative in South Eastern Europe which includes 11 partner states (Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Macedonia, Montenegro, Moldova, Romania, Slovenia, Serbia and Turkey) and two states with observers status (Hungary and Greece). The DPPI SEE was launched in November 2000 by the Stability Pact for South Eastern Europe in order to facilitate the cooperation and coordination of the SEE countries in preventing, preparing and strengthening capabilities to respond to natural and man-made, i.e., technological, disasters. After transforming the Stability Pact for South Eastern European 2008, the DPPI SEE came under the umbrella of Regional Cooperation Council. In the same year, a Memorandum of Understanding, as the only legal basis regulating its objectives, structure and decisionmaking process, was signed by partner countries. DPPI SEE activities are on capacity building of partner countries aimed to enhance disaster preparedness and prevention through disaster management education and training courses, including organization of workshops, seminars, conferences, etc. Significant achievements have been made throughout the implementation of several regionally owned projects. Nevertheless, besides the important results that have been achieved in the work of the DPPI SEE to date, certain weaknesses and shortcomings have been demonstrated. The DPPI is now at some sort of milestone anticipating the new Memorandum of Understanding.

Fiscal Rules and Public Spending: Evidence from Italian Municipalities

The aim of this paper is to investigate the extent to which local budget spending composition reacts to fiscal rules variations. I consider the budget of Italian municipalities and exploit specific changes in the Domestic Stability Pact’s rules, to perform a difference-in-discontinuities analysis. The results show that not all rules are equally effective: imposing a cap on the total amount of consumption and investment is not as binding as two caps, one specific for consumption and a different one for investment spending. More specifically, the consumption variation is triggered by changes in the level of wages and services spending, while investment relies on infrastructure movements. In addition, there is evidence that when an increase in investment is achieved, there is also a higher budget deficit level.

Financial Crisis and New Solutions in the European Union: the Case of a Small Country

This paper addresses the probable modifications of the economic strategy of Lithuania after the 2008-2009 crisis (the Great Recession) and the changes in macroeconomic environment in the European Union (EU). In Lithuania’s case, like that of the other two Baltic states, a certain specificity of a small open economy was revealed and the need for some adjustment of strategy was displayed. Both the rapid economic progress of the Baltic States as well as their extreme economic depression during the crisis in the largest part was the result of the integration of those national economies into the European and world markets. The crisis has not only halted the economic progress of the EU and other countries of the world for a few years, not only induced attempts to review some weakened postulates of economic theory, but also asked for major adjustments in the economic policy of the EU and member states. Based on the texts drafted by the European Commission it has already agreed on tougher requirements in the Stability and Growth Pact, signed and ratified the Treaty on stability, coordination and governance in the economic and monetary union, and the European semester began operating procedures. EU Member States’ economic policies have become inserted into a rigid frame, and the process of content aggregation of national economic policies will continue. Based on theoretical conclusions of single currency area and the practical requirements of the common monetary policy in the euro area integration processes are underway and will proceed rather fast. By the decisions of European Council the euro area should become a nucleus of economic integration of the EU member states, leading to full economic union. EU’s political leaders, in conformity with the theory of European integration, raise already an issue of political union into the agenda. The article provides an analysis of the changes and draws a couple of conclusions. First, the process of economic integration should be separated stricter than ever before from process of political integration. Second, economic integration modifies the sovereignty of the states (increasingly moving to the principles of unified economic policy and economic decision-aggregation), which is not to be equated with the loss of sovereignty, but requires a new approach in the assessment of factors and motives of a national economic policy and its role in securing country’s sovereignty.

The Spanish Legal Framework for Curbing the Public Debt and the Deficit

Constitutional reform in Spain – Budgetary stability – Debt and deficit limits – Fiscal Compact – Six Pack – Two Pack – Fiscal federalism – ‘State of autonomies’ – Financing of the autonomous communities – Adoption of an ‘internal stability pact’

Mental health law in Serbia – an important step towards destigmatisation

Serbia has, along with other countries in the region, begun reform of its mental healthcare services. The delivery of mental healthcare was hitherto only partially regulated by law. Hence the National Committee for Mental Healthcare in Serbia has prepared a draft Mental Health Law within the context of a multicentre project entitled 'Enhancing social cohesion through strengthening community care' as part of the Stability Pact for South Eastern Europe. It is expected that new mental health legislation will soon be approved by Parliament and lead to the implementation of changes concerning mental healthcare. It should contribute to the destigmatisation of patients, mental health professionals and psychiatry as a discipline.

Portugal in the European Union: The Limits of Convergence

This article examines the integration experience of Portugal in the European Union in order to study how it has affected the country's fiscal policies in the decade prior to the global financial crisis, from 1999 to 2008. It focuses on three main variables to account for the difficulties that Portugal experienced in complying with the Stability and Growth Pact: institutions, ideas, and interests. The paper closes with some lessons from the Portuguese experience. The examination of this case will show that, to be successful, economic reform has to be a domestic process led by domestic actors willing to carry it out.

PUBLIC INTERVENTION TO SUPPORT INVESTMENTS IN INDUSTRIALISED COUNTRIES

The main challenge the traditionally developed countries have to face today is competition from the newly industrialized countries. As the engine of development and the means for infusing and diffusing technological progress, and therefore for the growth of productivity in the system, levels of investment are crucially important. This article considers the tools for public intervention that can affect business investment decisions. It underlines the importance of interventions that reduce the tax wedge and the quasi-fiscal burden on labor costs. The main difficulty lies in finding cover within public budgets to compensate for the loss of revenue and/or the additional expenditure required for these incentives. The answers are to be found in reducing the less productive parts of the public expenditure, in modifying the composition of the fiscal and parafiscal levy, and in interpreting the constraints of the Stability Pact in a less “accounting-orientated” way based more on economic effects.

Public Intervention to Support Investments in Industrialised Countries

The main challenge the traditionally developed countries have to face today is competition from the newly industrialized countries. As the engine of development and the means for infusing and diffusing technological progress, and therefore for the growth of productivity in the system, levels of investment are crucially important. This article considers the tools for public intervention that can affect business investment decisions. It underlines the importance of interventions that reduce the tax wedge and the quasi-fiscal burden on labor costs.The main difficulty lies in finding cover within public budgets to compensate for the loss of revenue and/or the additional expenditure required for these incentives. The answers are to be found in reducing the less productive parts of the public expenditure, in modifying the composition of the fiscal and parafiscal levy, and in interpreting the constraints of the Stability Pact in a less “accounting-orientated” way based more on economic effects.

How to enforce fiscal discipline in EMU: A proposal

Summary Based on Inman’s (1996) classification of successful fiscal policy rules, we argue that the Stability and Growth Pact suffers from two serious weaknesses: a politicized decision-making process and lack of effective instruments to enforce that Member States adjust their fiscal policies if needed. Although recent changes in the European Union’s governance of national fiscal policy are considered to be an improvement, we argue that they do not address these shortcomings sufficiently. More independent enforcement is needed, and our preferred long-term solution would be to delegate the enforcement of European budgetary rules to a fully independent Budgetary Authority. Once the enforcement by this authority is well established and government debt-to-GDP ratios have declined towards 60%, fiscal discipline could be strengthened even further by introducing well-designed Eurobonds as the capstone of EMU. We propose centrally issued Eurobonds for the full public debt under the condition that Member States will no longer be allowed to independently raise funds in the money or capital markets. The independent Budgetary Authority only distributes funds to Member States if they have sustainable fiscal policies as defined under the SGP or if they properly implement a strictly monitored adjustment program.

Challenges of EMU: The ‘New’ Stability Pact and Economic Differences

In the absence of rules, free-riding budgetary behaviour would push up interest rates in the area as a whole. The architecture of EMU would raise the question of Stackelberg leadership in a potentially damaging and unstable monetary-budgetary game. (The ECB is not the Bundesbank).
As there is no fiscal union, an ultimate choice between excessive ECB ease to help the weakest country or default by one country appears possible.

Electoral Cycles And Local Government Debt Management

The literature provides both theories and empirical assessments that link national electoral cycles and opportunistic incumbents' behaviour. However, at the subnational level the literature is scarce. Using a panel of 238 Spanish municipalities over the period 1992–2005, this paper investigates for the first time in Spain whether electoral events contribute to shape municipal debt policies. We show that the electoral cycle influences the municipal debt per capita. Furthermore, both weak (no-majority) and wealthier municipal governments have higher levels of debt per capita. Finally, our data show that the 2001 Spanish Budgetary Stability Law (stemming from the European Stability and Growth Pact) appears to have reduced the electoral effect on municipal debt per capita.

A Comparative Analysis of Reverse Majority Voting: The WTO's Dispute Settlement Mechanism, the EU Anti-Dumping Policy and the Reinforced SGP and Fiscal Compact

The reinforced Stability and Growth Pact entered into force in December 2011 with a new set of rules for economic and fiscal surveillance of the EU Member States. To strengthen the effective enforcement the SGP introduced the policy innovation of reverse qualified majority voting in the EU Council. Under reverse qualified majority voting the European Commission can impose a sanction on a Member State unless the Council votes against with a qualified majority within a specified period. This paper discusses the motivation and the impact of the new voting rule on EU Council decision-making and the Member States. It presents a comparative analysis of three cases where different types of reverse majority voting have been introduced, i.e. the dispute settlement mechanism of the World Trade Organisation, the EU trade defence policy and the reinforced SGP and Fiscal Compact. The comparison demonstrates that reverse majority voting considerably lowers the majority threshold to pass proposals rendering their adoption almost automatic in the EU Council of Ministers. As a result, the reverse majority rule increases the discretion of the executive relative to the legislative power. Moreover, evidence from the WTO’s dispute settlement and the EU’s antidumping policy suggests that the automaticity is also likely to change the balance between the rule- and political-based decision-making in the area of fiscal and budgetary EU policy. These findings chime with the growing role of majority-based decision-making in an enlarged EU of 27 Member States. However, the findings also highlight the potential trade-off between decision-making capacity and legitimacy particularly in an area considered to be traditionally part of the EU Member States’ national sovereignty.

The Transformation of EU Competition and Internal Market Law by the Stability and Growth Pact: Competence Creep into the National Welfare States?

The paper discusses the measures taken by the EU in order to address the problems of the euro crisis. The focus is on the Stability and Growth Pact. Then, it explores the impact of these measures on EU internal market law, the European competition rules and the national welfare states. It is argued that a comprehensive EU approach to European economic law and the national welfare states is emerging.

The contribution of University in developing Entrepreneurial potential of the SMEs sector in Albania.

The contribution of University in developing Entrepreneurial potential of the SMEs sector in Albania.

The Stability Treaty: Permanent Austerity or Gesture Politics?

Treaty on Stability, Coordination and Governance – Economic governance – Stability Pact – The European Council – National constitutional law.

Effectiveness of Fiscal Policy Coordination Rules in the Monetary Union

Stability and Growth Pact is the main rule-based framework for the coordination of national fiscal policies in the economic and monetary union (EMU). It was established to safeguard sound public finances, an important requirement for EMU to function properly. Member states had a lot of determination before setting up a monetary union (nominal criteria were a condition to adopt common currency). In the next years, coordination of fiscal policy was not so successful. In many countries, revenues were temporarily boosted by tax-rich activity, while they didn’t restrict their expenditures. In most countries fiscal policy was pro-cyclical (not anti-cyclical) and they didn’t achieve their MTO. Financial crisis has sharpened budgetary problems in member states and showed the weakness of coordination rules.

Staatsschuldenkrise in Europa

Summary The euro countries currently experience a severe government debt crisis. Since Greece asked for financial assistance in May 2010 there has been a lively debate on how to resolve this situation. The solution that has been primarily suggested by politicians so far is to finance governments’ financial needs through emergency credits from EU sources (EFSF / ESM) and the International Monetary Fund. After explaining provisions like the stability pact and risk premiums on interest rates which aimed at guaranteeing fiscal stability in the pre-crisis EMU an overview is given showing financial and other political reactions to the crisis. In a second step, the sustainability of the Greek debt situation is extensively analyzed by employing the government budget constraint. The necessary primary surpluses enabling Greece to finance its government debt without international support as from 2020 onwards are, however, substantial. Therefore, it is very likely that Greece either needs further financial assistance or an additional hair cut in the future. Moreover, the effects of Greece leaving EMU are shown as well as the (financial) problems that would occur if further countries like Spain and Italy were infected. Finally, some suggestions are made how to avoid possible government debt crises in the future.

Long-Term Fiscal Sustainability in Belgium

The paper by Henri Bogaert focuses on Belgian budgetary prospects. It presents the Maltese model developed by the Federal Planning Bureau in order to evaluate alternative pension reforms in a broader budgetary context. The model includes a number of interdependent sub-models linking demography to the budget and to deficit and debt dynamics. The paper evaluates the effects of ageing on future primary surpluses in a constant-policy scenario. It computes the level of the “minimal sustainable primary surplus”, which is the primary surplus of the non-age-related budgetary items, which, if reached immediately and maintained constant, verifies the intertemporal budget constraint. Bogaert notes that the Stability and Growth Pact implies a different approach to ensuring sustainability. The Pact recommends a balanced budget over the cycle. Such a strategy leads to a primary surplus whose level depends on the debt to GDP ratio. As the latter tends asymptotically to zero, the primary surplus required by the Pact gradually declines. In the case of Belgium, the Pact requires a surplus which is initially higher than the minimal sustainable surplus, the ensuing fast reduction of the debt in the period 2000-2010, when the ageing problem is not yet very acute, will compensate later for the costs of ageing.