Actual and potential impact of EMU on economic and budgetary policies of the EU

Abstract

EMU and the euro have been existing for more than seven (almost eight) years. As it is known, EMU –and in particular the proper functioning of the single currency – requires the appropriate policy mix. But there is the significant macroeconomic and institutional imbalance within the euro area stemming from the coexistence of the single (centralized) monetary policy and nationally-oriented (decentralized) economic policies that are merely coordinated. Besides the EU economic coordination process and the policy mix have many other serious weaknesses. For that reason, in recent years there have been numerous proposals of the strengthening the economic policy coordination within the EU, which could be implemented in the nearest or a bit later future. They were related to improving coordination of economic, employment and budgetary policies within the EU or the euro area (including the Stability and Growth Pact – reformed in 2005). But those proposals and reform seem to be more or less enough to resolve some current problems, but they do not propose the complex and ultimate framework of economic policy within EMU in the long-term perspective. For that reason, at the present moment the EU still needs a serious debate on its future. The debate on the future of the EU started in 2000 – just a year after the introduction of the euro. After some years it might seem that the debate was over and the necessary solutions were found and adopted in the Constitutional Treaty. But following the last year’s events (of May and June 2005) – related to the rejection of the Constitution for Europe and initial non-agreement on the Financial Perspective 2007- 2013 – the debate on the future of the EU was reopen. Taking into account this crisis situation within the EU as well as the fact that the previous economic and political solutions have not been regarded as effective, it is worth to consider (or reconsider) some potential solutions that could be implemented in the EU in the longer future. For example, in the case of potential economic reforms, it would be interesting to consider whether the idea of the single economic/budgetary policy in the euro area is feasible (and desirable) in the long run. On the one hand, this idea is an extremely sensitive and controversial issue and there is strong opposition related to such a vision in the EU. But on the other hand, it seems to be very logical and natural because the logic and cumulative character of the integration process indicate that the evolution from the coordination of national economic and budgetary policies to the single economic/budgetary policy (coexisting together with the single monetary policy) seems to be an inevitable consequence of EMU in the longer term. In general, this study argues that EMU will have a serious impact on the further integration process within the EU, exerting in the course of time stronger and stronger pressure on its deepening – in both political and economic spheres (e.g. by complementing a monetary union with a political union).EMU, the euro, policy coordination, policy mix, economic policy, fiscal/budgetary policy, fiscal federalism, federation, political union