EU Fiscal Governance & Monetary Union

Few politicians dare to think aloud about federal models for the European Union. Even as a concept, the federal state is problematic. The perception of an unwieldy organization arises when the goal is a light consensus federation, where the Commission’s power is limited and the member states have more power to run their own affairs. In the European Parliament elections, each state still has its own electoral district. Some member states are divided into several constituencies. There is no need for EU-wide elections at the parliamentary level, nor EU-wide parties.

The 30th anniversary of the European Single Market provides an opportunity to celebrate its successes and review what is yet to be achieved. In the future, the European Single Market will play a decisive role in setting a framework of reliable social standards and common goals. It will ensure Europe’s resilience by helping companies adapt their supply chains to future risks and find new business opportunities. The concrete measures of social policy will be left to the member states.

Europe is facing a whole new set of challenges: The cost of living is rising, war is on our doorstep, and an environmental turnaround is needed. How should the EU framework for economic governance change to make Europe stronger, more sustainable and more resilient? The European Commission has recently developed guidelines for a reformed economic governance framework. In March 2023, the European Council endorsed these guidelines. They aim at strengthening national ownership and facilitating the enforcement of projects. At the same time, they are intended to enable strategic investments and set a framework to reduce the high level of public debt. However, such economic policy coordination efforts at the EU level and the individual governance reform proposals open new debates. To what extent do they correspond to the real needs and interests of the EU? And do they take into account country-specific economic, structural and social problems of the member states?

The EU faces the challenge to combine large and sustained investments to promote the transition towards a green, digital, and competitive Europe while maintaining fiscal sustainability. Based on a comprehensive literature review on the effects of fiscal rules and investment clauses on public finances, this in-depth analysis provides some guidance how higher public investments can be achieved by a targeted golden rule without harming fiscal sustainability in the EU fiscal framework. The study also discusses the role of investments in the current proposals of the European Commission on the reform of the EU Economic Governance.

This Policy Brief examines how minimum income support (MIS) schemes contribute to the stabilization of disposable incomes in times of crisis in Europe. MIS systems act as a “safety net of last resort” in many European welfare states, but to varying degrees. The results from the simulation of stylized unemployment shocks hitting labor markets suggest that the tax-transfer system overall contributes to income stabilization in periods of crises. However, the MIS schemes’ individual contribution is relatively small, especially as set against the unemployment insurance system.