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