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From Financial Times
Amid all the focus on the UK’s decision to use its veto, it is important not to miss the main economic outcome of the summit, which is that the agreement heralds a new era in European policymaking. The German approach to fiscal policy will now be writ large across the eurozone. This raises three key questions:
● How different will this prove to be in practice from the old status quo?
● Is it a good idea from an economic point of view?
● Does it allow the European Central Bank in future to play the same role in the eurozone as the Federal Reserve and the Bank of England have been playing in the US and the UK?
My initial take on the deal is that it will be sufficient to dampen the acute phase of the crisis, but that the absence of a clear long-term strategy for growth means that there could still be a long period of chronic problems ahead.
First, then, how different is this deal from the status quo on fiscal policy? There are certainly some important differences, though they might be rather more important in political symbolism than in economic reality. This will depend on the fine print, which has still to be written.
The key difference from the “six pack” of regulations which was implemented in November (see this earlier blog) is the new fiscal rule, which requires that:
General government budgets shall be balanced or in surplus; this principal shall be deemed to be respected if, as a rule, the annual structural deficit does not exceed 0.5 per cent of nominal GDP. Such a rule will also be introduced in member states’ national legal systems at constitutional or equivalent level. The rule will contain an automatic correction mechanism that shall be triggered in the event of deviation.
This rule, which will be enshrined in a new international agreement, certainly sounds very tough. The fact that it will now be written into national legislation, and that it will allow the European Commission to participate in the framing of national budgets, are significant steps. However, the Stability and Growth Pact contains a similar medium-term objective for budgets already built into it, and also contains sanctions which are automatic, unless overturned by a qualified majority of the Council. So the fiscal rule is not entirely novel.
A breach of the new rule is not determined by simple arithmetic, but by the Commission, which takes into account many special circumstances (such as the existence of a deep recession) before declaring non-compliance. This will remain the case. The upshot is that the new fiscal regime will probably increase the political pressure on governments to move towards balanced budgets, but the actual practice is likely to be much less automatic and less rigid than the summit communiqué seeks to suggest.
Second, is any of this a good idea from an economic point of view? Here we enter much-debated territory. The obvious problem with placing a greater onus on countries to adopt more fiscal austerity (which in several cases is obviously needed, whether or not fiscal indiscipline was the original cause of the crisis) is that it also makes it much more difficult to emerge from recession. So we might expect the summit to have seriously addressed the need for a growth strategy.
On this, the communiqué is extremely unconvincing. It does mention the “new macro-economic imbalances procedure”, which has also just been adopted by the European Union. This is intended to increase the pressure on surplus countries (mainly Germany) to accept a greater responsibility for closing balance of payments imbalances, rather than leaving it all to the deficit countries to handle through fiscal contraction. But this resolution, unlike the fiscal rule, has no teeth for non-compliance. The missing growth strategy, and the missing plan to eliminate competitiveness imbalances in the eurozone, could prove to be very serious omissions indeed.
Third, does this deal enable the ECB to act more like a normal central bank in the eurozone? This is certainly one of the main purposes of the deal, so this question is crucial. Mario Draghi’s initial reaction is positive. Last week, when he talked about “sequencing”, it was clear that the ECB would only contemplate “other elements” if an acceptable fiscal compact was in place first. That box is now ticked, in his view. He also said last week that “confidence works backwards”, implying that if a credible end point was in place, then the ECB might be more willing to take steps to provide bridging finance to that ultimate destination.
It will now be crucial to discover what the “other elements” in Mr Draghi’s mind will turn out to be. At a minimum, there are grounds for hoping that this might include an increase in ECB bond purchases under the Securities Markets Programme. It might also include a more comprehensive acceptance of quantitative easing at the ECB, if deflation proves to be a serious threat during the coming recession. It could even include a willingness to adopt measures to fix the bond spread between Germany and other countries, but that still seems a stretch.
Any of these developments would be hard for the hawks on the ECB Governing Council to accept. It will be interesting to see what the Bundesbank, Germany’s central bank, has to say about the fiscal compact, given that it has always opposed quantitative easing in any circumstances, whatever the fiscal arrangements might be. Does this attitude change now that Angela Merkel, the German Chancellor, has achieved the fiscal union which she wanted, and the ECB President has described the outcome as “a very good” one? Even the Bundesbank might find it difficult to oppose this powerful combination.
So the eventual importance of this summit might be that it has brought the eurozone’s economic strategy more into line with that in other countries, involving some fiscal tightening along with a greater willingness to adopt unconventional monetary easing. Once again, governments are relying on the power of the central bank balance sheet to get them out of a hole.
==================================================
對任何違反預算政策規定的國家，處罰條款將自動生效，除非首腦峰會絕對多數否決，懲罰措施可能包括限制歐盟對該國進行投資或援助，歐洲法院今后將有權對成 員國財政預算進行審核，以查看是否符合財政赤字準則。但即使有成員國預算違規，歐洲法院也不能宣布預算無效。另外，協議要求歐盟各國基於自愿原則在本國憲 法中寫入預算平衡條款。
法德堅持嚴格的財政紀律和較低的赤字水平，事實上只有很少的歐元區國家能達到這一要求，方案可執行的基礎很差，推行起來比較困難。
==================================================
This was never achieved; and when both France and Germany had deficits exceeding 3 % of GDP in the early 2000s they simply cobbled together a majority to change the interpretation of the Stability Pact to allow them to avoid fines.
How to get to this lofty goal was left open. On current projections only two member countries will actually satisfy the limit of the euro fiscal compact: Germany and Italy. Given that Italy is now the biggest headache for the eurozone, this may seem surprising --Italy does not have a deficit problem. The problem of Italy is its high debt level, or rather the need to roll over large amounts of debt coming due at acceptable rates. The fiscal compact will do little to alleviate this problem.The country is on course to achieve fiscal balance in two years.
==================================================
歐洲官員指出，卡麥隆其實是掉進了沙克吉的陷阱裡。法國一直想要建立一個以歐元區國家為基礎的歐洲內陸核心，把英國排除在外，這次正是大好機會。意大利總理馬里奧·蒙蒂贊同他的看法說，英國“自我隔絕”，現在面臨“某種孤立局面”。
許多專家認為英國如今是放棄了五十多年來游走於歐洲內、外的傳統戰略。以往英國在有關歐洲金融服務業的法規上，從未喪失投票權，但今後英國已「自願離開這些談判」。國際金融業者可能會決定停止在英國的投資，而在蘇黎世或法蘭克福增僱員工；歐元區終究會以法蘭克福或其他金融都會來取代倫敦。
Amid all the focus on the UK’s decision to use its veto, it is important not to miss the main economic outcome of the summit, which is that the agreement heralds a new era in European policymaking. The German approach to fiscal policy will now be writ large across the eurozone. This raises three key questions:
● How different will this prove to be in practice from the old status quo?
● Is it a good idea from an economic point of view?
● Does it allow the European Central Bank in future to play the same role in the eurozone as the Federal Reserve and the Bank of England have been playing in the US and the UK?
My initial take on the deal is that it will be sufficient to dampen the acute phase of the crisis, but that the absence of a clear long-term strategy for growth means that there could still be a long period of chronic problems ahead.
First, then, how different is this deal from the status quo on fiscal policy? There are certainly some important differences, though they might be rather more important in political symbolism than in economic reality. This will depend on the fine print, which has still to be written.
The key difference from the “six pack” of regulations which was implemented in November (see this earlier blog) is the new fiscal rule, which requires that:
General government budgets shall be balanced or in surplus; this principal shall be deemed to be respected if, as a rule, the annual structural deficit does not exceed 0.5 per cent of nominal GDP. Such a rule will also be introduced in member states’ national legal systems at constitutional or equivalent level. The rule will contain an automatic correction mechanism that shall be triggered in the event of deviation.
This rule, which will be enshrined in a new international agreement, certainly sounds very tough. The fact that it will now be written into national legislation, and that it will allow the European Commission to participate in the framing of national budgets, are significant steps. However, the Stability and Growth Pact contains a similar medium-term objective for budgets already built into it, and also contains sanctions which are automatic, unless overturned by a qualified majority of the Council. So the fiscal rule is not entirely novel.
A breach of the new rule is not determined by simple arithmetic, but by the Commission, which takes into account many special circumstances (such as the existence of a deep recession) before declaring non-compliance. This will remain the case. The upshot is that the new fiscal regime will probably increase the political pressure on governments to move towards balanced budgets, but the actual practice is likely to be much less automatic and less rigid than the summit communiqué seeks to suggest.
Second, is any of this a good idea from an economic point of view? Here we enter much-debated territory. The obvious problem with placing a greater onus on countries to adopt more fiscal austerity (which in several cases is obviously needed, whether or not fiscal indiscipline was the original cause of the crisis) is that it also makes it much more difficult to emerge from recession. So we might expect the summit to have seriously addressed the need for a growth strategy.
On this, the communiqué is extremely unconvincing. It does mention the “new macro-economic imbalances procedure”, which has also just been adopted by the European Union. This is intended to increase the pressure on surplus countries (mainly Germany) to accept a greater responsibility for closing balance of payments imbalances, rather than leaving it all to the deficit countries to handle through fiscal contraction. But this resolution, unlike the fiscal rule, has no teeth for non-compliance. The missing growth strategy, and the missing plan to eliminate competitiveness imbalances in the eurozone, could prove to be very serious omissions indeed.
Third, does this deal enable the ECB to act more like a normal central bank in the eurozone? This is certainly one of the main purposes of the deal, so this question is crucial. Mario Draghi’s initial reaction is positive. Last week, when he talked about “sequencing”, it was clear that the ECB would only contemplate “other elements” if an acceptable fiscal compact was in place first. That box is now ticked, in his view. He also said last week that “confidence works backwards”, implying that if a credible end point was in place, then the ECB might be more willing to take steps to provide bridging finance to that ultimate destination.
It will now be crucial to discover what the “other elements” in Mr Draghi’s mind will turn out to be. At a minimum, there are grounds for hoping that this might include an increase in ECB bond purchases under the Securities Markets Programme. It might also include a more comprehensive acceptance of quantitative easing at the ECB, if deflation proves to be a serious threat during the coming recession. It could even include a willingness to adopt measures to fix the bond spread between Germany and other countries, but that still seems a stretch.
Any of these developments would be hard for the hawks on the ECB Governing Council to accept. It will be interesting to see what the Bundesbank, Germany’s central bank, has to say about the fiscal compact, given that it has always opposed quantitative easing in any circumstances, whatever the fiscal arrangements might be. Does this attitude change now that Angela Merkel, the German Chancellor, has achieved the fiscal union which she wanted, and the ECB President has described the outcome as “a very good” one? Even the Bundesbank might find it difficult to oppose this powerful combination.
So the eventual importance of this summit might be that it has brought the eurozone’s economic strategy more into line with that in other countries, involving some fiscal tightening along with a greater willingness to adopt unconventional monetary easing. Once again, governments are relying on the power of the central bank balance sheet to get them out of a hole.
==================================================
對任何違反預算政策規定的國家，處罰條款將自動生效，除非首腦峰會絕對多數否決，懲罰措施可能包括限制歐盟對該國進行投資或援助，歐洲法院今后將有權對成 員國財政預算進行審核，以查看是否符合財政赤字準則。但即使有成員國預算違規，歐洲法院也不能宣布預算無效。另外，協議要求歐盟各國基於自愿原則在本國憲 法中寫入預算平衡條款。
法德堅持嚴格的財政紀律和較低的赤字水平，事實上只有很少的歐元區國家能達到這一要求，方案可執行的基礎很差，推行起來比較困難。
==================================================
This was never achieved; and when both France and Germany had deficits exceeding 3 % of GDP in the early 2000s they simply cobbled together a majority to change the interpretation of the Stability Pact to allow them to avoid fines.
How to get to this lofty goal was left open. On current projections only two member countries will actually satisfy the limit of the euro fiscal compact: Germany and Italy. Given that Italy is now the biggest headache for the eurozone, this may seem surprising --Italy does not have a deficit problem. The problem of Italy is its high debt level, or rather the need to roll over large amounts of debt coming due at acceptable rates. The fiscal compact will do little to alleviate this problem.The country is on course to achieve fiscal balance in two years.
==================================================
歐洲官員指出，卡麥隆其實是掉進了沙克吉的陷阱裡。法國一直想要建立一個以歐元區國家為基礎的歐洲內陸核心，把英國排除在外，這次正是大好機會。意大利總理馬里奧·蒙蒂贊同他的看法說，英國“自我隔絕”，現在面臨“某種孤立局面”。
許多專家認為英國如今是放棄了五十多年來游走於歐洲內、外的傳統戰略。以往英國在有關歐洲金融服務業的法規上，從未喪失投票權，但今後英國已「自願離開這些談判」。國際金融業者可能會決定停止在英國的投資，而在蘇黎世或法蘭克福增僱員工；歐元區終究會以法蘭克福或其他金融都會來取代倫敦。
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