This paper investigates the evolvement of the Fiscal Compact out of the Maastricht stability criteria using liberal intergovernmentalism and economic theories and gives an outlook into a possible future.
The new Fiscal Pact includes an automatic mechanism that sets in directly when a member state reaches a high public debt or government deficit. Furthermore, the EU Court of Justice has the competence to punish countries that have breached the treaty.
This crisis has shown that the integration between the euro zone members states is increasing, especially due to the need of fiscal and economic surveillance. The liberal intergovernmentalist approach explains how the increasing cooperation between the member states results into more enforcing supranational rules but also on why the EU might still be considered as a weak institution. This paper focuses on the underlying economic problems and how the euro member states seem to be able to cope with the crisis. It shows how the Stability and Growth Pact in the Maastricht treaty has not been enough and that due to the crisis, economic and fiscal integration as well as enforceable rules are getting more important and are leading to a stronger integrated monetary union.
Table of Contents
1. INTRODUCTION
1.1 BACKGROUND
1.1.1 Membership criteria to enter the EMU
1.1.2 Fiscal Compact
1.2 RESEARCH QUESTION
2. THEORY
2.1 LIBERAL INTERGOVERNMENTALISM
2.2 SPILLOVER EFFECTS
2.3 ECONOMIC SHOCKS
3. METHODOLOGY
4. ANALYSIS
5. CONCLUSION
Research Objectives & Topics
This paper explores the evolution of the Fiscal Compact in response to the Eurozone crisis, applying liberal intergovernmentalist theory to analyze the shift toward stricter fiscal surveillance and the limitations of current supranational mechanisms in addressing economic disparities.
- Evolution of the Fiscal Compact from Maastricht stability criteria
- Application of Liberal Intergovernmentalism to EU institutional policy
- Analysis of competitiveness disparities and economic shocks within the Eurozone
- Limitations of fiscal deficit and public debt enforcement mechanisms
Excerpt from the Book
1.1.1 Membership criteria to enter the EMU
The Maastricht Treaty imposes five criteria on countries that have to be fulfilled to enter the European Monetary Union. These criteria have been set in order to stabilize the currency.
These criteria are:
• Inflation rate which is supposed to “not exceed the average of the three lowest inflation rates achieved by the EU Member States by more than 1.5 percentage points” (Baldwin, Wyplosz, 2006)
• Long- term nominal interest rate “should not exceed the average rates observed in the three lowest inflation rate countries by more than 2 percentage points” (Baldwin, Wyplosz, 2006)
• ERM membership “for at least two years without having to devalue its currency” (Baldwin, Wyplosz, 2006)
• Budget deficit of no more than 3% of the GDP (Maastricht treaty, 1992)
• Public debt of no more than 60% of the GDP (Maastricht treaty, 1992)
Chapter Summary
1. INTRODUCTION: Outlines the origins of the Eurozone crisis and introduces the Fiscal Compact as a response to sovereign debt issues and the need for institutional reform.
2. THEORY: Establishes a theoretical framework using liberal intergovernmentalism, spillover effects, and economic shock models to explain state integration patterns.
3. METHODOLOGY: Explains the analytical approach, relying on existing literature and economic data to assess the viability of current fiscal policies.
4. ANALYSIS: Evaluates the disparity in competitiveness across member states and examines why existing enforcement mechanisms have failed to prevent the crisis.
5. CONCLUSION: Synthesizes the findings, arguing that while the Fiscal Compact enhances coordination, it lacks necessary institutional changes to address asymmetric economic shocks.
Keywords
Fiscal Compact, Eurozone crisis, Liberal Intergovernmentalism, Maastricht Treaty, Sovereign debt, Economic integration, Supranationalism, Competitiveness, Asymmetric shocks, Budget deficit, Monetary union, EU Court of Justice, Fiscal discipline, Spillover effects, Economic policy
Frequently Asked Questions
What is the core focus of this research paper?
The paper examines whether the introduction of the EU Fiscal Compact is sufficient to prevent future Eurozone crises by analyzing its origins in relation to the Maastricht Treaty.
What are the central themes discussed in the work?
Key themes include fiscal discipline, the tension between national sovereignty and supranational control, institutional enforcement, and the economic impact of competitiveness disparities.
What is the primary research question?
The author questions why Eurozone member states have agreed to increased fiscal cooperation and stricter oversight, and whether these measures are robust enough to stabilize the currency union.
Which scientific methodology does the author employ?
The paper uses the theory of liberal intergovernmentalism to explain state decision-making, combined with an assessment of economic data regarding debt and competitiveness.
What topics are covered in the main body of the paper?
The body analyzes the history of membership criteria, the mechanics of the Fiscal Compact, theoretical economic models like spillover effects, and case studies like Spain to illustrate the limits of current regulations.
What are the primary keywords that characterize this work?
The work is characterized by terms such as Fiscal Compact, Eurozone crisis, liberal intergovernmentalism, and economic shocks.
How does the author define the role of the EU Court of Justice in this context?
The author identifies the EU Court of Justice as a new, critical enforcement mechanism meant to punish treaty breaches, representing a shift toward more enforceable supranational rules.
Does the paper suggest that the Fiscal Compact is the final solution for the Eurozone?
No, the author concludes that while the Compact is a step toward coordination, it fails to provide the necessary institutional tools to handle asymmetric economic shocks, such as those impacting Spain.
- Quote paper
- Katharina Osterholt (Author), 2012, Is the EU Fiscal Compact enough to avoid another Euro Crisis?, Munich, GRIN Verlag, https://www.grin.com/document/193727
