Preventing another Euro Area Crisis: EU Economic Governance ‘Six Pack’ – a case of too little, too late? Paper from the Colloquium: The Politics and Economics of the Euro Crisis, Institute for European Studies, University of Malta, 2 December 2011

Summary: The ‘Six Pack’ forms part of the economic governance reforms which are being implemented in order to prevent a repeat of the current sovereign debt crisis in the Euro Area. This legislative package involves strengthening the Stability and Growth Pact, with stronger financial sanctions and more focus on debt; a new directive on national budgetary frameworks and a new framework to monitor and correct macroeconomic imbalances. Furthermore, the implementation of the ‘Six Pack’ also involves procedural reforms, in particular reverse majority voting, as well as more oversight by the European Parliament. Inter-institutional negotiations on the ‘Six Pack’ took over a year. In the meantime, the sovereign debt crisis had deepened and broadened, implying that the ‘Six Pack’ may have come ‘too late’. The ‘Six Pack’ has also proved to be ‘too little’ to address the crisis and by the time it entered into force, further measures and proposals to strengthen economic governance had to be made. Nevertheless, the ‘Six Pack’ comprises some positive developments. In particular, recognising that fiscal policy is a matter of national sovereignty, it sets a new approach which relies on institutional reforms at national level. As such, it constitutes a first, small step to improve economic governance in the Euro Area

Budget Institutions in the Euro Area Quality of budget institutions, legislative budgetary power and implications for fiscal discipline

This study assesses the quality of national budget institutions and legislative budgetary power in the Euro Area (EA) and examines their implications on fiscal discipline. Following the sovereign debt crises, common EA requirements have been introduced for national budget institutions, most notably for fiscal rules and independent fiscal councils. Meanwhile, the legislature has a key role to ensure that budgetary decisions are democratically legitimate, but strong legislative budgetary power is generally associated with less fiscal restraint. Two comprehensive composite indices are produced, based on recent data which captures reforms implemented after the Crisis. The findings show that overall, budget institutions in the EA are of medium quality, whilst legislative budgetary power is weak. Notwithstanding the thrust for a ‘one-size-fits-all’ approach, the specific characteristics of budget institutions differ considerably among the EA countries. Furthermore, results from a two-way fixed effects panel model for 2006-2015 show a positive relationship between the quality of budget institutions and the budget balance, but, in contrast to previous studies, the effect is rather weak. Being supra-nationally mandated, recent reforms to budget institutions in EA member states may suffer from a lack of ownership, thus impinging on their effectiveness to instil fiscal discipline. A qualitative case study on Malta provides further insight into the limitations of centrally-mandated institutional reforms. Finally, the findings suggest that stronger legislative budgetary power does not necessarily jeopardise fiscal discipline, if this involves a broad role of the legislature in the budgetary process, beyond amendment powers

Forms of fiscal governance in the Euro Area - what role for the delegation approach?

The Euro Area has relied on a rules-based or contracts approach to instil fiscal discipline among the member states, mainly through the supra-national Stability and Growth Pact, and more recently through the requirement to have fiscal rules also at the national level. On the other hand, the alternative delegation approach, which emphasises strong procedural rules governing the budgetary process, has been largely ignored in the Euro Area’s fiscal governance framework. We use composite indices to measure the quality of both the rules-based and delegation approaches in all the 19 Euro Area countries. The results show that despite the common rules-based requirements, there are notable differences in the quality of the national fiscal frameworks among the member states. Furthermore, characteristics of the delegation approach remain important in various countries. Using a two-way fixed effects panel data model, we find empirical evidence for a significant positive impact of both fiscal governance approaches on the budget balance for the EA countries during 2006-2018. At a more disaggregated level, our findings give support to the strengthening of medium-term budgetary frameworks and to more centralised decision-making during the budget approval stage. Moreover, we also find that reforms to budget institutions during the period under review have mainly involved fiscal rules and independent fiscal councils, and being supra-nationally mandated, rather than nationally-driven, this seems to have affected their effectiveness to achieve fiscal discipline. Our findings thus suggest a reconsideration of the centrally-mandated, common EA requirements for national fiscal frameworks, which involve a one-size-fits-all, rules-based approach.peer-reviewe

Legislative budgetary power and fiscal discipline in the euro area

PurposeThe objective of this study is to understand the budgetary role of national legislatures in euro area (EA) countries and to analyse implications for fiscal discipline.Design/methodology/approachBuilding on the budget institutions literature, a legislative budgetary power index for all the 19 euro area (EA) countries is constructed using Organisation for Economic Co-operation and Development (OECD) and European Commission data as well as data generated from questionnaires to national authorities. A two-way fixed effects panel data model is then used to assess the effect of legislative budgetary power on the budget balance in the EA during 2006–2015.FindingsOverall, in the EA, formal legislative powers vis-à-vis the national budgetary process are weak, but there is more legislative involvement in Stability and Growth Pact (SGP) procedures, and legislative budgetary organisational capacity is generally quite good. In contrast to the traditional view in the budget institutions literature, this study’s empirical findings show that strong legislative budgetary power does not necessarily result in larger budget deficits.Research limitations/implicationsData on legislative budgeting were available from different sources, and time series data were very limited.Practical implicationsThere is scope to improve democratic legitimacy of the national budgetary process in the EA, without necessarily jeopardising fiscal discipline.Originality/valueThe constructed legislative budgetary power index covers all the 19 EA countries and has a broad scope covering various novel institutional characteristics. The empirical analysis contributes to the scarce literature on the impact of legislative budgeting on fiscal discipline.</jats:sec

Relationship between default mode network and resting-state electroencephalographic alpha rhythms in cognitively unimpaired seniors and patients with dementia due to Alzheimer's disease

Here we tested the hypothesis of a relationship between the cortical default mode network (DMN) structural integrity and the resting state electroencephalographic (rsEEG) rhythms in patients with Alzheimer's disease with dementia (ADD). Clinical and instrumental datasets in 45 ADD patients and 40 normal elderly (Nold) persons originated from the PDWAVES Consortium (www.pdwaves.eu). Individual rsEEG delta, theta, alpha, and fixed beta and gamma bands were considered. Freeware platforms served to derive (1) the (gray matter) volume of the DMN, dorsal attention (DAN), and sensorimotor (SMN) cortical networks and (2) the rsEEG cortical eLORETA source activities. We found a significant positive association between the DMN gray matter volume, the rsEEG alpha source activity estimated in the posterior DMN nodes (parietal and posterior cingulate cortex), and the global cognitive status in the Nold and ADD participants. Compared with the Nold, the ADD group showed lower DMN gray matter, lower rsEEG alpha source activity in those nodes, and lower global cognitive status. This effect was not observed in the DAN and SMN. These results suggest that the DMN structural integrity and the rsEEG alpha source activities in the DMN posterior hubs may be related and predict the global cognitive status in ADD and Nold persons

Poor reactivity of posterior electroencephalographic alpha rhythms during the eyes open condition in patients with dementia due to Parkinson's disease

Here, we hypothesized that the reactivity of posterior resting-state electroencephalographic (rsEEG) alpha rhythms during the transition from eyes-closed to -open condition might be lower in patients with Parkinson's disease dementia (PDD) than in patients with Alzheimer's disease dementia (ADD). A Eurasian database provided clinical-demographic-rsEEG datasets in 73 PDD patients, 35 ADD patients, and 25 matched cognitively unimpaired (Healthy) persons. The eLORETA freeware was used to estimate cortical rsEEG sources. Results showed substantial (greater than −10%) reduction (reactivity) in the posterior alpha source activities from the eyes-closed to the eyes-open condition in 88% of the Healthy seniors, 57% of the ADD patients, and only 35% of the PDD patients. In these alpha-reactive participants, there was lower reactivity in the parietal alpha source activities in the PDD group than in the healthy control seniors and the ADD patients. These results suggest that PDD patients show poor reactivity of mechanisms desynchronizing posterior rsEEG alpha rhythms in response to visual inputs. That neurophysiological biomarker may provide an endpoint for (non) pharmacological interventions for improving vigilance regulation in those patients