Policy Instruments for a Crisis-proof European Union?

Task

The current debate about the economic and political development of the European Union devotes considerable attention to fostering economic resilience and achieving economic convergence of the member states. In the aftermath of the financial crisis, numerous policy instruments have been introduced to monitor economic developments, increase growth and macroeconomic stability, and enhance convergence across the EU. Further reforms aimed at deepening the Economic and Monetary Union are currently under discussion. 

Against this background, we aim at investigating three current policy proposals:

1.  establishing a European Minister of Economy and Finance,
2.  creating a European Monetary Fund and 
3.  implementing a fiscal instrument aiming to incentivise national governments to conduct growth-enhancing reforms.

We strive to assess to what extent these policy proposals could increase economic stability and resilience, and develop our own suggestions on the design of these policy instruments.

1.  A European Minister of Economy and Finance
Establishing a European Minister of Economy and Finance may reduce the complexity of decision processes within the Economic and Monetary Union, and hence improve its efficiency and resilience. However, establishing a new position without a proper understanding of the added value of such a new player is risky. The EU could end up with just one more prestigious title without real substance and impact. Hence, this contribution seeks to clarify the possible role of an EMEF in the context of the reform debate on a new European Fiscal Union.

2. A European Monetary Fund
One recent policy suggestion is to replace the European Stability Mechanism (ESM) by a European Monetary Fund (EMF), an institution similar to the International Monetary Fund. We will analyse the benefits and drawbacks of such an EMF from different perspectives and shed light on the possible scope of the EMF’s responsibilities.

3. A Reform Delivery Tool
The European Commission favours implementing a so-called reform delivery tool to support structural reforms in the member states. By providing fiscal transfers to member states, this tool strives to incentivise governments to conduct growth-enhancing structural reforms. We assess the current policy proposal, provide an in-depth analysis of its advantages and potential risks, and subsequently develop our own proposal for the design of such a fiscal instrument.