Antonio Fatás is less than impressed with the European Union's new treaty:
New treaty, same old flaws, by Antonio Fatás: The European Union member states (with the exception of the UK and the Czech Republic) agreed yesterday to a new Treaty on "Stability, Coordination and Governance". The text of the agreement can be found in the web site of the European Council. My first reaction after reading the document was that I must have made a mistake and clicked on the wrong (old) document. It is very difficult to see the differences with the current economic policy framework. And, unfortunately, all the flaws of the previous system are still there.
Here is my list of concerns about the agreement.
1. Wrong title. The agreement is mostly about fiscal sustainability not about stability, coordination and governance. ...
2. Numerical limits at the center of the fiscal policy framework. The agreement relies again on strict numerical limits to enforce fiscal discipline. So far this has not worked and it is difficult to imagine why it would work going forward. ...
3. Not enough stress on good years. The main failure of fiscal policy in European countries in the last decade has been not to generate large enough surpluses in good years. By focusing so much on the deficit limit of 0.5% we simply ignore that the real issue is on how to generate those surpluses and we put all the emphasis on the bad economic years where getting things right is so much harder. We have not learned much from the last 10 years.
4. Limited focus on governance. Despite the fact that the word governance appears in the title of the agreement, there is very little change in terms of governance and enforcement. The agreement will be enforced by the governments of the member countries. These are the same actors that can potentially be the sinners. ... The agreement talks about automatic fines. Fines that are paid to whom? To the potential group of offenders? Do we really believe that if we had had in place an automatic fine imposed on Greece for having violated the deficit limit we would not be in a crisis today?
Providing an economic policy framework to manage the Euro area is not an easy task and I am glad that I was not part of the negotiations that have taken place over the last days. But the agreement shows that we have learned very little from the previous experience. We insist on maintaining a system that does not work and that only provides a distraction to other economic policy issues that, if we try hard enough, we might be able to solve.