Faster and harder reforms without new treaty negotiations necessary

Institute for World Economics of the Hungarian Academy of Sciences

Krisztina Vida
 
Rescue package welcome but too late
 
In the general Hungarian assessment, the solution of the Greek crisis is welcome, but it came too late. According to a high official of the Ministry of Foreign Affairs,[1] the declarations released prior to the March 2010 European Council were insufficient. In fact, a strong positive message was needed not only towards the markets but also towards all members of the Eurozone as well as towards other countries inside and outside the EU. The process leading to the European Council decision was a rather painful one and entailed, on the one hand, fast deterioration of the Greek situation, while at the same time caused an obvious weakening of the German government on the other (the voters’ “punishing” of the Christian Democratic Union (CDU) in the recent elections for regional parliament in North Rhine Westphalia). This means that the long hesitation and late decision brought about tangible economic and political costs. The staggering attitude of EU decision-makers also increased the risks of other Euro countries’ potential “collapse” (i.e., Portugal, Ireland, Italy, and Spain).
 
Stricter coordination and transparency are indispensable
 
The main lesson of the Greek case is that the budgetary policies of member states (both their planning and implementation) should be coordinated in a more efficient and strict way, as the present mechanisms proved to be too weak. All member states must match competitiveness with sustainability of public finances and nobody should be able to hide the real figures of the national budget. The key words in the future should be stricter coordination, transparency and also real sanctions.
 
Improved mechanisms and a European Monetary Fund are needed
 
As regards coordination of economic policies, we have to rely on the provisions of the Lisbon Treaty and use them to their utmost possible, as in the foreseeable future no new treaty modification can be expected. According to experts,[2] the strong coordination of economic policies coupled with a new early warning mechanism would be the right solution to preventing similar crises in the Eurozone. Another “must” is the setting up of a European Monetary Fund providing for immediate assistance to countries in trouble; however, these loans should be made conditional on budgetary reforms in the beneficiary country. In their view, a third key element would be the automatism of sanctions without exemptions.
 
When discussing the issue of European level economic governance, it must be recognised that the member states have very different approaches as regards the goals and tools of economic policy; therefore, economic policy-making as such cannot be “harmonised” at the EU level. As long as the EU is neither imposing taxes nor providing public goods, it also lacks the legitimacy of carrying out economic governance. The solution is to keep the strong supranational monetary pillar of Economic and Monetary Union (EMU) coupled with reinforced economic coordination, while continuing the completion of the internal market project coupled with gradual tax approximation. This would give a stronger background for the economic pillar of EMU, while the member states would still maintain their competences over the national budget.
 
Regarding the future role of the Eurogroup, Hungary would like to see the non-Eurozone countries take part as observers. This would be important, especially for those new member states that are preparing for the introduction of the single currency.
 
Competitiveness and territorial cohesion could have been linked in the new Strategy
 

The new Europe 2020 Strategy is, in general, welcomed by Hungary, although it has been criticised for its institutional weaknesses as well as for its general approach. As to the first issue, according to a high official at the Hungarian Ministry of Foreign Affairs,[3] it is regretted that no single and transparent institutional unit will be dealing with the Strategy within the Commission (similarly to the management of the Lisbon Strategy). As to the second issue, it is also regrettable that the first proposal did not mention “cohesion” explicitly. Although this aspect appears in the text indirectly, Hungary would have preferred a more direct link between territorial cohesion and competitiveness.


[1] Interview done at the Ministry of Foreign Affairs on 12 May 2010.

[2] See the interview in the Hungarian newspaper Világgazdaság with two experts: professor László Csaba, and research director Margit Rácz, 4 May 2010, available at: http://www.vg.hu/gazdasag/gazdasagpolitika/javitanak-a-fiskalis-fegyelme... (last access: 17 May 2010).

[3] Interview done at the Ministry of Foreign Affairs on 12 May 2010.

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