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Economic management of the EU in the present financial crisis

Published 09 Sep 2015

On Tuesday 9 September, as part of AIIA’s partnership with ANU’s European Studies Centre Touring Lecture series, visiting scholar Robert Mezyk spoke at the Glover Cottages about the values and rationale behind the European Union’s economic management in both ordinary and crisis situations. In a comprehensive technical walkthrough of the topic, Robert explained the systems and mechanisms that were established in order to coordinate an economic and monetary policy that would ensure both fiscal discipline and autonomy among member states in a single-currency union.

The EU was designed with the economic sovereignty of the state in mind. While there is an overarching economic and monetary policy as part of the union, member states are free to fund and coordinate their own respective fiscal policies and agendas. Member states that are found to be in breach generally agree to corrective policy responses to steer debt and deficit towards 60% and 3% of GDP respectively.

Recent improvements to the economic regulatory framework include the six-pack and two-pack regulations, designed to return insolvent states back into stability and allow the European Central Bank greater economic surveillance and foresight of member states. However Robert contends that additions to the framework as the crisis continues are taking a supra-national trajectory, potentially getting to a point where the economic sovereignty of states could be diminished. This is increasing tensions as Europeans, especially in states hardest hit by the crisis such as Greece, lose faith in the European project due to a failure of crisis management by the “Troika”. At this point in time, Robert believes that the EU is at a make-or-break juncture, where tensions exacerbated by economic crisis could either undermine the whole project or pressing on could lead to stability and further integration.

Robert Mezyk

Clearly much needs to be improved in the way of economic crisis management. During question time attendees raised how the economic corrective policies have continued with relatively little change despite worsening Greece’s economy, and how it was not foreseen that a common market, single-currency union with no fiscal policy would be bound to engender crisis in a union made up of many different societies, cultures, markets and industries. According to Robert, the economic governance of the Union is political and ideological as much as it is economic and technocratic, and many resources and much political capital were invested into its realisation by Francois Mitterrand and Helmut Kohle in the past, and its continuation by Angela Merkel presently.

It seems that capital, political and sentimental investment into the European economic project has limited its capacity for pragmatic and rational strategies. Nevertheless, Robert believes that the EU’s mechanisms thus far have shown that it can be flexible and adaptive enough to change tack and address the tensions and problems that threaten its cohesion.

Report prepared by Novan Sachrudi