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ISSN 1822–8402 EUROPEAN INTEGRATION STUDIES. 2012. No 6
HYPOTHETICAL EVOLVENT OF MACROECONOMIC STABILITY SURVEILLANCE
INDICATORS AND EUROPEAN UNION ‘S INITIATIVES FOR MAINTENANCE OF
FINANCIAL STABILITY
Rasa Daugeliene
Kaunas University of Technology, Institute of Europe, Lithuania
e-mail: [email protected]
http://dx.doi.org/10.5755/j01.eis.0.6.1792
The Evolvent of Macroeconomic Stability Surveillance Indicators - Old Wine in New Bottles?
Starting from the summer of 2008, the European Union’s economy suffers the recession. The discontent of EU citizens does
not allow to implement impartial (although sometimes painful) actions for the recovery of the situation which lasts too long
and rises many associated problems. In the latest European Commission’s document, it is stressed, that economic, financial
as well as moral recession is now affecting so many parts of Europe that this situation raises the doubts considering the trust
in the ability of Europe’s political and economic system to deliver on the EU Treaty’s ambition of “sustainable development
based on balanced economic growth.” However, such statements are not, or should not be, unexpected and could be interpreted
at least as catchwords. Considering prevailing situation of moral decline, incredulity in the capability of political actions the
article solves the scientific problem – how to evaluate the macroeconomic situation of a national economy? What are the main
indicators for macroeconomic stability surveillance of the national economy? Is it possible to apply it to every country? Are
there any correlations between theoretical instruments (policies) for coordination of macroeconomic situation at the domestic
level and actual actions undertaken by the EU Commission? The object of research is the domestic (EU member state’s)
macroeconomic stability and EU-actions for the maintenance of macroeconomic and financial stability. The subject of the
research is a set of theoretical indicators used for the macroeconomic stability surveillance. The article aim is to construct
hypothetical evolvent of macroeconomic stability surveillance indicators and to analyse some initiatives of EU Commission
for maintenance of macroeconomic and financial stability. To achieve this aim four tasks were performed: systemised existing
theoretical instruments (policies) for coordination of macroeconomic situation in the state level; constructed the evolvent of
macroeconomic stability surveillance indicators; highlighted some initiatives of the EU Commission for the maintenance of
macroeconomic and financial stability; provided negotiable recommendations for actions considering macroeconomic and
financial stability surveillance in the EU.
Scientific originality and practical significance of the article: the article solves original scientific problem - is there the
applicable method for evaluation of macroeconomic stability of the national economy. Solution of the scientific problem enables
to provide the comprehensive evolvent of macroeconomic stability surveillance indicators. There are provided practical and
substantiated recommendations for actions considering macroeconomic and financial stability surveillance in the EU. The
article does not aim to present all EU’s initiatives towards maintaining economic stability. It is a key to highlight that evident
actions, taken by EC in order to control economic situation, do exist, but they seems to be more strategic and hypothetical.
Theoretical comparative analysis of the scientific works, analysis of legal documents as well as strategies and practical
papers in this field were employed as research methods. The recommendations and conclusions are provided using realitybased, prognostic – analytical methods.
Keywords: macroeconomic stability; evolvent of macroeconomic stability surveillance indicators; EU-actions; financial
stability.
Introduction
The problem of macroeconomic stability of state‘s
economy1 practically seems to be extremely important
problem during the centuries. Starting from the date when
the letter was invented in Mesopotamia in 3100 BC people
started to look for possibilities how to control the flows of
assets in different forms, how to save the jewels, how to
1
manage the effective collection of tribute, to enforce people
to work etc. (Kancerevyčius, G., 2009). History highlights
plenty of events which could be interpreted as precondition
for the need to create well organised systems (with different
elements) which would enable to function state’s economy
properly and effectively. Such intentions are nothing less
then challenge for theorists and practitioners to find a method
The author maintains the idea presented by many of scientists and practicians of fiscal watchdog creation.
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ISSN 1822–8402 EUROPEAN INTEGRATION STUDIES. 2012. No 6
for the construction of a perfect system2 of maintenance of
macroeconomic stability domestically.
When analysing the decline of the EU’s economic,
financial as well as social situation, which started in the
autumn of 2008 (the light of World’s financial crisis), some
controversial conclusions follow. As the practice shows,
unless the vital need for the perfect management of different
economic as well as fiscal and monetary policy activities and
plenty of scientific efforts, were the importance and possibility
to control macroeconomic situation is analysed (e. g. Keynes
J. M., 1930; 1936; Hayek F. A. (1944)3; Friedman M. (1976);
Schumpeter J. (1947)4; Samuelson P. (1946); Sollow, R.
(1956); Rothschild, M., Stiglitz, J. (1976); Barro R., Becker
G. (1980); Hawkins, 1948; Clarida, R., Gali, J., Gertler
M., 2000; Kaminsky, Reinhart, 1999; Fehr, E., Schmidt,
K. M. (1999); Bauer, Herz, Karb, 2007; OECD, 2009;
Freedman C., 2000; Meyer, L. H., Doyle, B. M., Gagnon, J.
E., Henderson, D. W., 2002; Barrell, R., Davis, E. Ph., 2005;
Clarida, R., Gali, J., Gertler, M. (2000); Bresnahan, T. F.,
Erik Brynjolfsson, E., Hitt, L. M. (2002), Barrell, R., Hurst. I,
(2008); Martinez, V., Sancher-Robles, B. (2009); etc.), there
are many insufficient attempts to control economic situation
in the EU. Rhetorical question - where is a problem? It is a
key to stress that one of the essential preconditions for the
problems in the EU is not only the political ambitions but
and the lack of productive communication (dialog) between
practitioners (in the case of state’s leaders) and scientists.
There are many historical lessons from the past (Minsky, H.P.,
1992; Daugėlienė, R., 2011) as well as methods, e. g. signalto-noise ratio used in Kaminsky, Lizondo, and Reinhart
(1998) or the profit modelling in Frankel and Rose (1996)
which allow to predict the possible events as well as to design
guidelines for the solution of consequences. However such
practise is still missing.
Considering the above mentioned, the article solves the
scientific problem – how to evaluate the macroeconomic
situation of a national economy? What are the main indicators
for macroeconomic stability surveillance of the national
economy? Is it possible to apply it to every country? Are there
any correlations between theoretical instruments (policies)
for coordination of macroeconomic situation at the domestic
level and actual actions undertaken by the EU Commission?
The object of research is the domestic (EU member
state’s) macroeconomic stability and EU-actions for the
maintenance of macroeconomic and financial stability.
The subject of the research is a set of theoretical
indicators used for the macroeconomic stability surveillance.
The aim of the article – to construct hypothetical
evolvent of macroeconomic stability surveillance indicators
and to analyse some initiatives of EU Commission for the
maintenance of macroeconomic and financial stability.
To achieve this aim four tasks are to be performed:
• to systemise existing theoretical instruments (policies)
for coordination of macroeconomic situation in the
state level;
2
The statement is more hypothetical. However there is possibility to create
perfect model in the theory which could be converted or applied in the practise.
3
Hayek F. A. The Road to Serfdom (1944). Routledge Press.
4
“Theoretical Problems of Economic Growth”, 1947.
• to construct the evolvent of macroeconomic stability
surveillance indicators;
• to highlight some initiatives of the EU Commission
for the maintenance of macroeconomic and financial
stability;
• to provide negotiable recommendations for actions
considering macroeconomic and financial stability
surveillance in the EU.
Scientific originality and practical significance of the
article:
• the article solves original scientific problem: is there the
applicable method for evaluation of macroeconomic
stability of a national economy ;
• solution of the scientific problem will enable to provide
the comprehensive evolvent of macroeconomic
stability surveillance indicators;
• there are provided practical and substantiated
recommendations
for
actions
considering
macroeconomic and financial stability surveillance in
the EU.
Theoretical comparative analysis of the scientific works,
analysis of legal documents as well as strategies and practical
papers in this field was taken as the research methods. The
recommendations and conclusions are provided using reality
-based, prognostic – analytical methods.
Existing Theoretical Instruments (Policies) for
Coordination of Macroeconomic Situation in the State
Level
P. Samuelson together with other American economists
in the period of 1940 – 1950 created positivistic neoclassical
economic theory. It declares that functional relations between
macroeconomic indicators are based on microeconomic
processes and events. The later were analysed by neoclassic
economists Menger C., Jevons W. S., Bohm – Bawerk E.,
Walras L. and U. Marshal. In 1946, P. Samuelson stated that
modern economic system can effectively overcome such
defects of life as unemployment and inflation. It could be
achieved by adjusting two principles: effective influence of
government on the market as a unique system and; freedom
of behaviour of producer and consumer.
In the 1970’s new classical economists Lucas R., Sargent
Th. J., Barro R. criticised J. M. Keynes ideas considering
wages and prices adjustments. New classical economists
build their macroeconomic theories on the assumption that
wages and prices are flexible. Some of the scientists analyse
the coordination failure in macroeconomic5 (Cooper, R.,
John A., 1988; Gaygısız, E., Madden P., 2002; Irons J. S.,
2005). According to this, the question rises: are there any
scientifically based instruments (policies) for the assurance
of state’s macroeconomic stability? The analysis of scientific
works shows that these instruments do exist but not all of them
can be applied without adaptation to the reality and depth of
the economic and financial problem.
A. Smith’s theory where is stated that the best solution
for avoidance of economic recessions is total liberalization of
activities of economic unities. That means that governments
shouldn’t control economic processes organizing liberal, open
5
Most of them based on criticism of unemployment theory.
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– free, out of control governmental policy. The later situation
in the EU countries) shows that such kind of governmental
retreat of disability of political actions is not beneficial for
national economies.
It is a key to stress, that theoretically the aims of economic
policy could be reached controlling and coordinating seven
main instruments (policies) (historically proved), which
are identified as essential for the macroeconomic stability
maintenance:
• moral (values) policy (this is the field totally forgotten
in the XXI centure);
• monetary policy (settlement of consumer price index;
inflation; interest rates6. Business and consumer,
economy activities surveys are under the control of
ECB as well. It is responsible and for the growth of the
money supply);
• fiscal policy (control of governmental spending,
income and tax rates. Theory predicts that strategically
- determined tax rates induce negative externalities
across countries);
• employment and income policy (this is exceptional
national states’ competence which should enable
“healthy” or adequate to incomes consumption);
• interest rate policy (fixed exchange parities. Partly
correlated with fiscal policy but it is very important to
be separated);
• structural policy (this is exceptional national states’
competence as well. Governmental actions for social
and economic growth stimulation. Directly correlated
with employment policy);
• trade and environmental policy (governmental actions
for the creation of economically and socially friendly
environment).
In order to achieve total benefit all these policies should
be coordinated and well organised in each country. Specific
institutions should be created in order to ensure efficient
implementation of new ideas. The coordination processes
directly depends on:
• the purpose and its importance for the national
economy;
• the effectiveness of each instrument;
• the subjects responsible for the implementation of
selected methods.
Coordination of policies listed above is imperative but it
could be stressed that there are arguments “for” and “against”
their application. Calmfors L. (2001) analyzed that there exist
the spillover effects of policies. It is very difficult to evaluate
the consequences of policies coordination as the possibility to
make experiments with different policies is available. Usually
these experiments do not conclude positively7. Adequate
method for macroeconomic policy coordination should be
selected taking into account the structure of country (social,
economic and cultural – values situation).
6
Monetary policy is the exceptional ECB competence in the euro zone. It‘s
management is defined historically by Maastricht criteria. Why euro zone
countries did not follow them? Weren’t these rules the precondition for the
settlement of obvious and reasonable sanctions of punishment for not following them after join to EMU?
Meyer, L. H., Doyle, B. M., Gagnon, J. E., Henderson,
D. W. in their 2002 study presented that international
macroeconomic coordination is still alive in the new
millennium and this process should be developed taking into
account the specificity of period and economy. The authors
stress, that international policy coordination raises welfare for
all states. Accordingly, each country is concerned only with its
own welfare. However, policy actions of each country affect
the welfare of others. That is, they generate “externalities.”
Externalities give rise to policy conflicts.
Each country policy coordination could be implemented
using a canonical example (incentive to tighten monetary
policy in order to lower inflation and raise welfare applying
“prisoner’s dilemma” game (Meyer, L. H., Doyle, B. M.,
Gagnon, J. E., Henderson, D. W., 2002). It is a key to stress
that there may raise two types of policy conflicts (absolutely
natural and necessary for evaluation):
• stabilization conflicts: temporary conflicts, which
occur because of wage and price inertia and eventually
disappear as wages and prices adjust;
• ongoing conflicts: permanent conflicts, which occur
even if wages and prices are perfectly flexible and
never disappear.
Calmfors L. and Wren-Lewis S. (2011) proposed a method
to counter deficit bias of fiscal policy. It is fiscal watchdogs,
so-called fiscal or advisory, decision-making councils (for
example, International Monetary Fund (IMF); the OECD,
the ECB). Advisory councils should solve different causes of
deficit bias:
• information and forecasting problems;
• impatience, electoral competition or time inconsistency;
• common - pool problems (the co-ordination necessary
to make individual agents internalize the effects of
policies that benefit them on others).
Fiscal councils tasks presented by Calmfors L. and WrenLewis S. (2011) :
• ex-post evaluation of whether fiscal policy has met its
targets in the past.
• ex-ante evaluation of whether fiscal policy is likely to
meet its targets in the future.
• analysis of the long-run sustainability and optimality
of fiscal policy.
• analysis of fiscal transparency.
Quantitative analysis of policy coordination. There is
an extensive literature on the quantitative analysis of policy
coordination (Clarida R., Gali, J., Gertler, M., 2002; Mendoza,
E. G., Tesar. L. L., 2003; etc.). Oudiz G. and Sachs J. (1984)
were the first to estimate the gains of macroeconomic
coordination from cooperation. They used the reduced forms
of two econometric models and (quadratic) country welfare
functions. The target variables were the output gap, inflation,
current account surplus, relative weights. The authors find
gains of between one-half and one percent of GDP per year
for each of the country blocs considered.
7
Look at the money injection to the economy of Greece. The solution
seemed to be logical and tended for positive consequences but the reality
shows controversial consequences. Not earned money is less “nourishing”,
and less economically beneficial.
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Independent data collection
Net external position / debt
Transparent procedures and indicators
calculation
Integration into existing economic policy
surveillance processes
Real effective exchange rate based
on unit labour costs
Real house price increase
Public sector debt
Possibilities for discretionary sanctions
International political
events
Current account balance
Institutional indicators
Economic indicators
Global economic
activities
Macroeconomic stability surveillance indicators
Ratio of private sector debt / credit to
GDP
Individual countries threshold values
Culture
Common human values
Attitudes
Formal national rules
State‘s reputation
Figure 1. Evolvent of macroeconomic stability surveillance indicators
Hypothetical Evolvent of Macroeconomic Stability
Surveillance Indicators
Taking into account above settled down theoretically
proved truths, the idea to systemise the indicators8 which
would allow to evaluate the situation of state’s economy
comes as natural process.
Yet in the 1948 Hawkins D. said that “in any exchange
economy there are potential sources of instability that lie
deeper than the imperfections of the exchange mechanism.
These are characteristics of any dynamical system that
consists of subordinate systems coupled by their influences on
each other. They may be exhibited by a simplified model that
assumes constant technical relations and full employment
of all resources”. This thesis makes the conclusion that
creation of hypothetical simplified structure of indicators for
macroeconomic stability surveillance is substantiated and
could be applied practically.
It is a key to stress that macroeconomic stability of
economy firstly depends on three comprehensive elements:
• state‘s reputation-building;
• formal national rules;
• international monitoring.
Figure 1 represents the hypothetical evolvent of
macroeconomic stability surveillance indicators.
The main macroeconomic stability surveillance indicators
groups are:
1) economic indicators (current account balance; net
external position / debt; real effective exchange rate
based on unit labour costs; real house price increase;
public sector dept; ration of private sector debt / credit
to GDP;
2) institutional indicators (independent data collection;
8
Paradoxically, but once more starting from John M. Keynes (1883 – 1946)
who described macroeconomics as separate element of economic theory in
1936’s work „The General Theory of Employment, Interest and Money“.
114
transparent procedures and indicators; integration
into existing economic policy surveillance processes;
possibilities for discretionary sanctions;
3) individual countries threshold values (culture;
common human values; attitudes; formal national
rules; state’s reputation).
These indicators are strongly affected by global economic
activities as well as international political events. The later
should be analyzed in order adequate react to the situation.
It is a key to stress that the assessment of existing situation
of macroeconomic situation of every state or region should
be coordinated with specific actions for the solution of
problems detected. There close cooperation of scientists and
policymakers should be organized in order to enforce the
solution of problems. The identification – is just the beginning
of long process of economy recovery.
Some Initiatives of the EU Commission for the
Maintenance of Macroeconomic and Financial
Stability9
After the September 2008 EU policy actions were
addressed in order to make monetary policy much easier: zero
rate interest bound was presented; a wave of debt guarantees,
recapitalisation and impaired asset relief was implemented at
record speed to avoid insolvency of financial institutions and
meltdown of the financial system at large10.
In the wake of the financial crisis the European Council at
its meeting of 11-12 December 2008 approved the European
9
The article does not aim to present all the EU’s initiatives towards stable
economy maintenance. It is a key to highlight that they do exist but the economic situation in the EU is still very complicated.
10
Detailed concise calendar of the EU policy actions (period 2008 October –
2009 July), p. 57. On-line document: http://ec.europa.eu/economy_finance/
publications/publication15887_en.pdf
ISSN 1822–8402 EUROPEAN INTEGRATION STUDIES. 2012. No 6
Economic Recovery Plan (EERP), setting out how Member
States and the European Union can coordinate their policies
and provide new stimulus to the European economy. Quite
controversial and discussible seems the first attempts to
strengthen EU economy. An important part of the EERP was
the proposal to increase Community investment in defined
strategic sectors and in particular in infrastructure projects,
with the objectives of giving an immediate boost to the
economy and at the same time enhancing Europe’s longerterm sustainable growth potential. In particular, the Plan
included a €500 million call for proposals for Trans-European
Transport Network (TEN-T) projects. Were these actions
adequate for the situation? Why the actions were not attacked
to the financial problems of countries? European Economic
Recovery Plan – Financing part (2009) was absolutely
not oriented to the solution of essential macroeconomic
problems.11
In 2009 European Commission presented crisis policy
framework where crisis prevention, control and mitigation,
resolution and EU coordination frameworks were highlighted
in the light of financial, monetary, fiscal, structural policies.
There were provided EU coordinated tools for micro- and
macro-prudential surveillance as well as fiscal surveillance.
However the economic imbalance in the euro zone and entire
EU internal market still remains essential problem which
needs for determined concrete EU’s actions.
Communication “Driving European recovery” of 4 March
2009, the European Commission committed itself to come
forward with proposals for reform of the EU framework for
financial supervision. The problems and problem drivers as
well as objectives in micro and macro prudential supervision
were highlighted (EC, 2009).
Initiatives undertaken by the EC in 2009 (apart from the
work on financial supervision) were:
• improving and removing gaps in regulation concerning
alternative investment funds and capital requirements
for banks;
• protecting consumers and SMEs (initiatives to foster
responsible lending and borrowing);
• improving incentives to reduce excessive short-term
risk-taking (initiatives on remuneration in financial
services);
• strengthening sanctions for infringements of the rules.
In a line with mentioned initiatives the EC ensured that
appropriate crisis intervention tools would be available in all
Member States to allow early intervention in ailing banks or
insurance firms, in order to guarantee the continuity of key
financial services, whilst minimising costs to the taxpayer.
Specific regulatory issues related to large and complex
financial groups were addressed in the context of the review
of the Financial Conglomerates Directive (FCD) as well (EC,
2009).
European Economic Recovery Plan 2010-2013 was
signed in 2009 as well. The Commission and the industrial
partners undertook to work intensively together to develop the
implementation plans for the three partnerships: “Factories
of the Future” initiative for the manufacturing sector (€1.2
billion for R&D); “Energy-efficient Buildings” initiative for
11
European Economic Recovery Plan – Financing, 2009 On- line: http://
www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/misc/107374.
pdf
the construction sector (€1 billion for R&D); and “Green
Cars” initiative for the automotive sector worth a total of €5
billion, of which €1 billion is for research activities.
Europe 2020 (March 2010) - the EC proposed platform
for a new growth initiative where five ambitious objectives
on employment, innovation, education, social inclusion and
climate/energy should be reached by 2020. Four priorities
(smart growth; sustainable growth; inclusive growth;
economic governance) were settled down12. Europe 2020
declares that assurance of public finances quality as well as
sustainable development is essential and should be controlled
not only at the state’s level. It should be one of the political
priorities of all EU. The macroeconomic imbalance – the
phenomenon which destroys the basics of EU countries and
euro zone countries economies – need to be controlled by
approved (historically and practically) methods, instruments
or models. It is important to evaluate that all control measures
have to be selected considering the state’s situation (this
means, that different measures should be applied for Germany,
Sweden, France, Lithuania, Estonia, Latvia and other for
Greece, Ireland, Spain, Italy).
The EC also proposed and the EU co-legislators agreed
a “six-pack” of legislation on economic governance, which
entered into force on 13 December 2011. This new legislation
has given the EU new and effective tools to deepen monitoring
of Member States’ economic and fiscal policies and to
enforce the rules. Through it, the Stability and Growth Pact
was amended to strengthen collective surveillance of public
finances.
Stability and Growth Pact13 (SGP) (is a rule-based
framework for the coordination of national fiscal policies in
the economic and monetary union (EMU). The last reform
was made in 2011 following the 2010 European sovereign
debt crisis, the EU member states adopted a new reform under
the Open Method of Coordination, aiming at straightening the
rules e.g. by adopting an automatic procedure for imposing of
penalties in case of breaches of either the deficit or the debt
rules. The new “Euro Plus Pact” was designed as a more
stringent successor to the Stability and Growth Pact, which
has not been implemented consistently. The measures are
controversial not only because of the closed way in which it
was developed but also for the goals that it postulates. SGP
cover stability and Convergence programmes (or updates)
and National Reform Programmes.
It can be agreed completely with the statement of Calmfors
L. and Wren-Lewis S. (2011) that „at the EU level, the stability
pact imposed ceilings on deficits and debt as well as medium term budget objectives. Just several countries introduced
12
It is a key to stress that Europe 2020 is strategic document, very similar to
the Lisbon Strategy 2010 which was not completely achieved. This presuppose the doubts if the Europe 2020 will work?
13
Agreement, among the 27 Member states of the EU, to facilitate and maintain the stability of the EMU. Based primarily on Articles 121 and 126 of the
Treaty on the Functioning of the European Union, it consists of fiscal monitoring of members by the EC and the Council of Ministers and, after multiple
warnings, sanctions against offending members. First was adopted in 1997 so
that fiscal discipline would be maintained and enforced in the EMU. Member
states adopting the euro have to meet the Maastricht convergence criteria,
and the SGP ensures that they continue to observe them. SGP was reformed
twice: in 2005 the EU Council, under the pressure of France and Germany,
relaxed the rules. the EC said it was to respond to criticisms of insufficient
flexibility and to make the pact more enforceable; and in 2011.
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ISSN 1822–8402 EUROPEAN INTEGRATION STUDIES. 2012. No 6
national fiscal rules. The recent explosion in government
debt suggests that the rules approach was not sufficient. One
reason is that rules were not observed (Greece). Another is
that, when deficit ceilings were respected, fiscal outcomes lay
so close to them that there”.
23 Member States (all Euro area Member States as
well as Bulgaria, Denmark, Latvia, Lithuania, Poland and
Romania) agreed the Euro Plus Pact in March 2011 to step up
coordination of reforms in areas not fully covered at EU level.
These countries have committed themselves to far-reaching
reforms in the four areas covered by the Pact:
• fostering competitiveness;
• fostering employment;
• enhancing the sustainability of public finances and
reinforcing financial stability.
They are also committed to engage in structured
discussions on tax policy issues. The commitments of the
participating Member States are reflected in their Stability or
Convergence Programmes and National Reform Programmes.
EU Regulation on the prevention and correction
of macroeconomic imbalances14. There was stated that
coordination of the economic policies of the member states
should be developed in the context of the broad economic
policy guidelines and the employment guidelines, and should
entail compliance with the guiding principles of stable prices,
sustainable public finances and monetary conditions and
sustainable balance of payments. There is a need to learn
lessons from the first decade of functioning of the EMU and,
in particular, for improved economic governance in the Union
built on stronger national ownership. The regulation provided
and strengthened the EP and EC competence considering
macroeconomic imbalance regulation, establishment
of alert mechanism for the early detection of emerging
macroeconomic imbalances. All member states are required
to implement actions to address macroeconomic imbalances
and divergences in competitiveness. The nature, importance
and urgency of the policy challenges may differ significantly
depending on the member states concerned. It is important to
make economic adjustment capacity.
Financial rules which were settled down in the SGP were
two week in order to manage the collapse of EU’s financial
market. Considering that EC’s work group suggested new
supervisory system. In 2011 January new EP and Council of
Ministers regulation 1093/2010 took into force. According to
this, three European Financial Supervision institutions were
established:
• the European Banking Authority (EBA);
• the European Insurance and Occupational Pensions
Authority (EIOBA);
• the European Securities and Markets Authority
(ESMA). 15
At the same time European Systemic Risk Board (ESRB) –
independent EU body responsible for the macro-prudential
14
Regulation (EU) No 1176/2011 of the European Parliament and of the
Council of 16 November 2011 on the prevention and correction of macroeconomic imbalances http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri
=OJ:L:2011:306:0025:0032:EN:PDF
oversight of the financial system within the Union - was
established as well.
European Commission (2012) declares that economic
stability is desirable because it encourages economic growth
that brings prosperity and employment, and is one of the main
objectives established in the management of Economic and
Monetary Union and the euro. Under the EMU, EU Member
States closely coordinate their economic policies with the
overall objective of maintaining economic stability. Economic
stability and low inflation create the necessary conditions for
sustainable long-term growth, which benefits the euro-area
Member States and their citizens16.
The very last EC initiative for implementation of Europe
2020 was made on 30th of May, 2012. The European
Commission presented Country-specific Recommendations
for 2012-2013. This was Communication of Action for
Stability, Growth and Jobs (2012).
As it is stressed by EC (2012) it was made important
progress in reinforcing financial backstops. The European
Stability Mechanism is scheduled to come into effect on 1
July 2012 – one year ahead of schedule - as the permanent
mechanism for financing crisis management in the euro area.
Taking the European Stability Mechanism, the European
Financial Stability Mechanism and other crisis funding
together EU have a total lending capacity of €800 billion.
Some actions will be addressed tapping into the potential:
• of the Internal Market;
• of Human Capital;
• of External sources of growth;
• of EU funding of the growth that Europe needs.
EC indicated that in 2012 efforts at national and at EU
level should concentrate on five priorities:
• pursuing
differentiated
growth-friendly
fiscal
consolidation;
• restoring normal lending to the economy;
• promoting growth and competitiveness for today and
tomorrow;
• tackling unemployment and the social consequences of
the crisis;
• modernising public administration.
Recognising the importance of forcefully tackling macroeconomic imbalances of a non-fiscal nature, the surveillance
framework was also broadened through a new macroeconomic
imbalance procedure. It aims to prevent the emergence of
imbalances that pose a risk to economic stability. The new
procedure includes a sanctions regime for repeated noncompliance with agreed actions. Using this new procedure,
the EC first alert mechanism report was published in February
2012. The first in-depth reviews were conducted on twelve
countries (Belgium, Bulgaria, Denmark, Spain, France, Italy,
Cyprus, Hungary, Slovenia, Finland, Sweden and the United
Kingdom).
To deliver collectively on these objectives and bring
together all of these commitments, to ensure better ex-ante
co-ordination and follow-up of decisions, the Member States
agreed and implemented for the first time in 2011 a new
way to coordinate national policies, the European semester
of policy coordination. The cycle starts with the publication
15
European financial supervisory institutions http://www.europarl.
europa.eu/sides/getDoc.do?pubRef=-//EP//TEXT+TA+P7-TA-20100272+0+DOC+XML+V0//EN
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16
Aren‘t these statements sound like catchwords? Could it be interpreted as
reality, or aspiration, or simply theoretical state of economic welfare?
ISSN 1822–8402 EUROPEAN INTEGRATION STUDIES. 2012. No 6
of an Annual Growth Survey (AGS) by the EC, reviewing
economic challenges and setting out priorities for the EU as a
whole (EC, 2012).
First, after the 2009, the European Commission turned to
the single person declaring that “many of our citizens are
angry and bewildered by the speed at which a long period
of rising living standards has turned into a huge financial
crisis, heavy job losses and the prospect of high debt levels
for many years to come”. This had to be understood from the
very beginning of recession.
Negotiable17 Recommendations (Considerations) for
EU-actions considering Macroeconomic Stability
Surveillance
Despite the very late initiative of European Commission
for implementation of Europe 2020 some common
recommendations for EU-actions considering macroeconomic
stability surveillance could be proposed.
The essential starting point for Europe is to enhance
understanding - what are the main future European
ambitions? At the moment there is no clear European future
vision except the trivial understanding that Europe wants
to live better and friendly. The natural values are standing
behind all the strivings. There should be created new treaties
(not catchwords documents) for the strengthening of political
integration.
It is reasoned and theoretically proved true, that the
macroeconomic stability of depends upon its ability to
react to shocks. Institutions need to be designed to absorb
shocks in order to enhance performance. As it is stressed in
recent work of Barrell and Davis (2005), shocks produce
cycles. Considering that, control both the impact of shocks
and the response of the economy to the shock are important
issues for policymakers. Macroeconomic policy in Europe is
now oriented to creating a stable environment in which the
potential for output growth is enhanced. However, not all
dimensions of a stability-oriented policy framework appear
to be in place. Fiscal policy rules and arrangements have been
the most discussed but they may not be as important as their
prominence indicates.
Despite all EC initiatives made for better living and
economic growth, full implications for macroeconomic
stability, especially in terms of its implications for financial
markets, have not yet been fully appreciated by policymakers.
In order to ensure appropriate international
macroeconomic coordination the specific actions should be
taken:
• it is essential to manage the stabilization conflicts.
Usually they arise because of countries exogenous
shocks: symmetric shocks, (perfectly) asymmetric
shocks, and country-specific. According to Meyer, L.
H., Doyle, B. M., etc. (2002), symmetric shocks affect
each of the two countries in exactly the same way;
asymmetric shocks affect each of the two countries
in equal and opposite ways; a country-specific shock
17
Taking into account all existing EU-actions considering macroeconomic
stability surveillance of EU economy, these recommendations without identification of concrete procedural actions should not be interpreted as real for
implementation. The scientists are invalid practically solve existing problems
despite the fact that there are competent in emphasis of them. This is a question of collaboration of scientists and politicians.
affects one country and not the other;
• it is necessary to implement commitments and
cooperation’s which would provide the rules of actions
as well as penalties for offences. Cooperation involves
commitments by two or more countries to follow
efficient policies. Commitment is possible when there
is a supranational authority that can punish departures
from announced policies so severely that departures
are unthinkable18. As Meyer, L. H., Doyle, B. M., etc.
(2002) state, the threat of punishment causes each
country to choose the efficient policy even though
each country has an incentive to choose a policy other
than its efficient policy if the other chooses its efficient
policy. Even if commitment is not possible, the fact that
countries will face the same or a similar problem in the
future may be enough to make it possible to achieve
efficient outcomes;
• to organise the exchange of information.
Fiscal watchdogs (advisory, decision-making councils)
should be created (e. g. European Financial Ministry). The
role of ECB should be expanded as well as new institution
responsible for financial stability in the EU should be created.
It is essentially important to adopt the rule of automaticity of
sanctions for those member states not respecting the rules of
the European governance. Other measures to be adopted at
European level19:
• elaborate and approve a regulation for the emission of
stability bonds, according to the lines indicates by the
European Commission;
• implement the decisions of the European Council
concerning the EFSF (European Financial Stability
Facility);
• reaffirm the centrality of price stability as primary
mission of the ECB while avoiding any temptation
to add the function of lender of last resort face to
Governments. Non standard monetary policy measures
are the best way to ensure the proper working of the
financial system;
• fiscal deficit of member states should be controlled at
the European level;
• introduce in the Treaty the obligation for Euro zone
Member States to adopt in their national Constitutions
the balanced budget rule;
National governments should orientate their monetary,
fiscal and social policies in such directions which would
stimulate the growth of economy, reduce governmental
debt as well as unemployment level, and enhance the local
consumption and confidence on better living conditions.
Conclusions
• Since the 1946 when positivistic neoclassical economic
theory was presented by P. Samuelson it was proposed
that functional relations between macroeconomic
indicators are based on microeconomic processes and
events. Modern economic system (the EU’s according
to all dimensions should be interpreted as modern) can
18
The current EU lack of such practise.
19
�����������������������������������������������������������������������
From the declaration of the Jean Monnet Chairs to the European Institutions and to the Governments of the EU Member States presented after the
Global Jean Monnet conference “The Present Crisis and the Future of Europe” on November 25-26, 2011, Brussels.
117
ISSN 1822–8402 EUROPEAN INTEGRATION STUDIES. 2012. No 6
effectively overcome unemployment and inflation.
It could be achieved by adjusting two principles:
effective influence of government on the market as
unique system and; freedom of behaviour of market
players. The seven main historically and practically
proved instruments (policies) could be identified as
essential for the macroeconomic stability maintenance:
moral (values) policy; monetary policy; fiscal policy;
employment and income policy; interest rate policy;
structural policy; trade and environmental policy.
• The evolvent of macroeconomic stability surveillance
indicators can be constructed analysing existing
instruments (policies) for the macroeconomic
stability maintenance. It could be used identifying
macroeconomic situation of each country as well as
highlighting advantages and disadvantages of state’s
economy. This allows to select adequate measures for
solution of problems. The main macroeconomic stability
surveillance indicators groups are: economic indicators
(current account balance; net external position / dept;
real effective exchange rate based on unit labour costs;
real house price increase; public sector dept; ration
of private sector debt / credit to GDP; institutional
indicators (independent data collection; transparent
procedures and indicators; integration into existing
economic policy surveillance processes; possibilities
for discretionary sanctions; individual countries
threshold values (culture; common human values;
attitudes; formal national rules; state’s reputation).
The expression of these indicators is strongly affected
by global economic activities as well as international
political events. The analysis shown that the evolvent
of macroeconomic stability surveillance indicators - it
is old wine in new bottle. The difference is just because
of period and standpoints of human beings.
• Until the end of 2008 there was the absence of
adequate EU-actions considering control of EU’s
macroeconomic situation. The first reaction of the
European Council to the financial crisis was ratification
of European Economic Recovery Plan (EERP) at its
meeting on 11-12 December 2008. However proposed
actions were not adequate to the situation. Later,
in 2009, the EC presented crisis policy framework
where the EU coordinated tools for micro- and macroprudential surveillance as well as fiscal surveillance
were provided. Other initiatives were signed in 2009:
“Driving European recovery”; European Economic
Recovery Plan 2010-2013. One of the first official
reaction’s of the EC to the stimulation of economy
growth was preparation of Europe 2020 (March
2010) (the platform for a new growth initiative). The
EC also proposed and the EU co-legislators agreed a
“six-pack” of legislation on economic governance.
Stability and Growth Pact was amended in 2011 to
strengthen collective surveillance of public finances.
EU Regulation on the prevention and correction of
macroeconomic imbalances was proposed in 2011
as well. For the management of collapse of EU’s
financial market three European Financial Supervision
institutions were established (the European Banking
Authority (EBA); the European Insurance and
118
Occupational Pensions Authority (EIOBA); the
European Securities and Markets Authority (ESMA)).
The very last EC initiative for implementation
of Europe 2020 was made on 30th of May, 2012.
The European Commission presented Countryspecific Recommendations for 2012-2013. This was
Communication of Action for Stability, Growth and
Jobs (2012).
• There can be detected correlations between
theoretical instruments (policies) for coordination of
macroeconomic stability in the state level and practical
actions made by the EU’s government. However,
these EU-actions are more catchwords as situation
in economy still is very complicated. The direct and
sometime aggressive, egoistic domination of senior
EU countries-leaders should be solved somehow.
• As the theoretical analysis has shown, the instruments
for the evaluation of macroeconomic situation do exist
and even the society knows (or can predict) how to
manage the recessions of economies. There is a lack
of productive cooperation between scientists (who are
able to highlight the problems and suggest the ways
out) and policymakers (who usually are able only to
propose the catchwords). The starting position for
Europe in order to manage all the consequences of
macroeconomic imbalance is to enhance understanding
- what are the main futures of European ambitions? The
political integration should be strengthened as well.
Not only several EU leaders (e. g. France, Germany,
UK) should decide where and how the EU should
develop. The procedures should be created in order
properly react to different shocks.
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