Experiences of European crisis management: the reform of economic policy coordination

This article is intended to present the new, (re)forming elements of economic policy coordination, an instrument playing a central role in the EU. One important lesson drawn from the crisis is that in order for the EU to become a stable, dynamically growing economy – in addition to its internal market (in particular, the free movement of capital) and a single monetary policy – there is a need for efficient coordination, which should also be credible for the markets. Economic policy coordination – the alignment of national fiscal policies to one another and, for euro area Member States, to the common monetary policy – is a key issue, and the intention to reform it is closely related to the crisis management of the past two years. The proposals presented thus far indicate that EU policy makers are firmly committed to setting up economic policy coordination mechanisms which are far more efficient than those already in place. Accordingly, they will rigorously assess both fiscal and real economic imbalances, and after the imbalances have been identified, they will readily enforce corrective mechanisms, including sanctions more severe than those already in place. Rules governing crisis management will certainly be clearer; however, in order to minimise moral hazard, the common European rescue package will continue to have a hefty price tag. It is a warning sign, however, that despite firm policy intentions, markets remain rather sceptical about the reform of the fiscal framework and the ability to guarantee the sustainability of fiscal policies, as indicated by the sovereign credit risk premia, which by September had risen to the levels observed in May.