Budgetary capacities are an important tool to protect the eurozone from economic shocks, and their extension to non-eurozone countries could help with the economic convergence of the newer member states.

The economic and financial crisis, which emerged in 2008, has greatly affected European member states and especially the eurozone countries. The EU was not sufficiently prepared to handle a crisis of such dimensions. Member states that had delayed relevant reforms in the past were hit considerably harder during the crisis and are still facing the consequences today. The EU has established several new instruments to tackle the crisis, like the European Stability Mechanism (ESM). With the ESM, the EU has introduced a significant mechanism to help every country in difficulty. But now we should also focus on preventing another crisis, not only on managing a crisis once it has hit us.

The idea of furthering the economic integration and convergence of EU member states is of utmost importance. One concrete tool which we are establishing now in order to further strengthen the Economic and Monetary Union (EMU), is a budget for the eurozone. What is it exactly? What are our objectives?

As shadow rapporteur for the European People’s Party (EPP) in the Committee of Economic and Monetary Affairs, I strongly believe the goal of a budgetary capacity should be to improve the overall competitiveness of the EU. If our economies are strong and competitive and our goods are demanded on global markets, we will be more resilient to economic crises in the future. The required reforms have to be conducive to more investment, profitable projects and enhanced productivity.

How will the Budgetary Capacity function in practice?

For this reason, we should first evaluate the instruments currently in place to improve the economic situation in Europe, like the European Semester or the Country Specific Recommendations (CSRs). Fundamental attention could be given to the CSRs, which already emphasise thoroughly the areas in need of reform. These are exactly the reforms that could be stimulated with the establishment of the budgetary capacity. But as we know, the implementation rate of these measures is not satisfactory and recent reflections have yielded no significant tools to improve it. The budgetary capacity could leverage the transposition of CSRs by providing positive incentives in the form of financial assistance for member states to implement reforms, especially in good economic times.

The philosophy of these financial incentives is to stimulate needed reforms and not to grant financial support to countries which have entered difficulties due to the postponement of such reforms. We want to stimulate good behaviour and not pay for the consequences of bad policy. Systematic, regular and independent evaluations will be necessary to ensure that all spending is achieving the desired outcome.

Examples of reforms

The budgetary capacity could support a number of reforms, for example to pension, the labour market or public administrations. Pension reforms could be supported through financial incentives for measures promoting lifelong learning or active ageing, both consequences of a higher retirement age. If people are expected to live longer, social measures that encourage elderly people to stay active and to acquire new skills could be stimulated and financed by a budgetary capacity.

If as a consequence of labour market reforms some people find new jobs and others become temporarily unemployed, the latter could be financially supported by the EU with training, mobility and assistance in finding a job. Financial support for the externalities of labour market reforms is a key element for less competitive economies (e.g. training of personnel, consequences of labour market reforms such as redundancies in the public sector and the need for re-qualification, support for reforming public administration). If public administration reforms demand investments in digitalisation or e-governance, which incur costs, then these costs could be carried by the budgetary capacity and thereby incentivise member states to enact such reforms.


The discussion on governance is substantial and important. But first and foremost, we should take into account the effects upon the real economy, specifically in the short-term, to generate investment and jobs. We have to offer our citizens and enterprises a plan that can be realised now, before any future treaty change can realistically come into discussion. Nevertheless, a treaty change in the future should include the budgetary capacity and become a permanent and EU-wide instrument.

Participation of non-eurozone member states

Any budgetary capacity should be open towards all EU member states. Countries that have a Treaty obligation to join the eurozone and make efforts to do so, should be given complete rights of participation: they should contribute and benefit financially and take part in the governance. The economies of many non-eurozone countries lack competitiveness, especially in the public sector, which constitutes a great obstacle for joining the euro. These are precisely the impediments that need to be overcome to become a member of the eurozone.

For many non-eurozone member states, the time is not yet ripe to join the single currency, and the consequences could be negative. In order for their economies to benefit from joining the euro, they have to become strong enough to be able to face competition in the eurozone. Participating in the fiscal capacity will help them converge with other eurozone countries, make their economies more competitive and ensure their further integration into the single currency’s governance structure. Previous experience has clearly shown that instruments that were not specifically designed for non-eurozone member states, such as the Fiscal Compact or the Euro+ Pact, have been beneficial to them as well.

Source: Euractiv.com