Treaty on Stability, Coordination and Governance in the Economic and Monetary Union as an Instrument of Fiscal Policy Coordination in the European Union

Abstract

The aim of this study is to assess the Treaty on Stability, Coordinationand Governance in the Economic and Monetary Union as an instrument fiscalpolicy coordination and identify some of the consequences that potentially carriesits use. All EU-members conduct independent fiscal policies, regardless of whetherthey are members of the euro zone or not. It is now known that one of the immediatecauses of the crisis in part the euro zone countries was permanent crossingfiscal convergence criteria as a result of an erroneous and irresponsible fiscalpolicy. Used so far forms of coordination of fiscal policies were too weak to preventthe destabilization of the Member States' public finances. The crisis has becomethe impetus for build deeper integration in the area of fiscal policy. Treaty onStability, Coordination and Management, called briefly Fiscal Compact or TSCG,is another instrument of fiscal policy coordination in the European Union. In largepart it is a repetition and a little evolution of the Stability and Growth Pact. Thisstudy indicated some disadvantages of the Fiscal Compact, what has the potentialto lead to its inefficiency. These are: reference to the structural balance, which isa relatively small transparency budgetary rule for the public opinion and becauseof the existence of several competing methods for its calculation; the Treaty providesfor the possibility of "extraordinary circumstances" and does not specify theterm balanced budget, which is a softening of fiscal discipline and opens opportunitiesfor political bargaining; financial penalties imposed on overdebt governmentswill not improve their situation. The Treaty on Stability, Management and Coordination does not constitute a breakthrough in the coordination of fiscal policiesin the European Union.