Macroeconomic Policies for EU Accession

Macroeconomic Policies for EU Accession

Edited by Erdem Başçı, Sübidey Togan and Jürgen von Hagen

What macroeconomic requirements must Turkey meet in its quest to accede to the European Union? This book, with its distinguished contributors – well-known economists and policymakers – examines and analyses these macroeconomic challenges confronting Turkey. Although the focus is on the specific situation of Turkey, the lessons are informative for other candidate countries and the findings directly relevant to the process of European integration.

Chapter 2: Fiscal Policies and Sustainability of Public Finances in the European Union

Jürgen von Hagen

Subjects: economics and finance, financial economics and regulation


2. Fiscal policies and sustainability of public finances in the European Union Jürgen von Hagen 2.1 INTRODUCTION Membership in the European Union (EU) has important consequences for the conduct of fiscal policies. While fiscal policy remains a national competence, the EU puts various constraints on the fiscal policies of its member states both at the micro and at the macro level. In this chapter, we focus on macro fiscal policies.1 Constraints on macro fiscal policies arise from two goals of the EU: the wish to coordinate the policies of the member states and the need to maintain sustainable public finances. Formally, these two goals are reflected in two different policy frameworks at the EU level. Coordination works primarily through the Broad Economic Policy Guidelines (BEPG) and several coordination procedures. Sustainability is the focus of the Excessive Deficit Procedure (EDP) and the Stability and Growth Pact (SGP). The Treaty on European Union (TEU) establishes ‘sound public finances’ as one of the guiding principles of economic policy in the EU (Art. 4(3)) and that the member states regard their economic policies as a matter of common concern and coordinate them through the ECOFIN Council and on the basis of the BEPG (Art. 99). In this context, the term ‘economic policies’ is commonly understood to include government tax and expenditure policies. According to Art. 103 of TEU, the Community, its institutions and the individual member states are protected against becoming responsible for financial liabilities of other member states...

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