The Imperative to Reform Economic Governance in the European Union: Searching for a Silver Bullet

Abstract

The euro has faced significant challenges due to inherent deficiencies in its governance structure, which were brought to light during the sovereign debt crisis. In order to reinforce budgetary discipline in the European Union, reforms have been introduced which have undermined the budgetary sovereignty of the Member States in favour of the EU institutions. The advent of the global pandemic has underscored the need for a novel regulatory framework that can address the existing social, economic, and ecological disparities. This chapter revisits the debate triggered by the several proposals to reform the European Union´s fiscal governance framework and assess their potential impact on MS´s public finances, aiming at providing a critical analysis of how those proposals were reflected in the new legislation. It has been proposed that expenditures by MS on investments in the green and digital transitions be excluded from budget compliance indicators for highly indebted countries, with the aim of enhancing their resilience. However, it is believed that the reform of the Stability and Growth Pact rules should have been more comprehensive and it failed to meet the essential requirements. It is unlikely that the current framework will resolve the structural weaknesses in the European Monetary Union, especially the permanent tensions between MS sovereign fiscal policies and the common monetary policy in the Euro Area.