The recent economic, financial and sovereign debt crises have taught us many lessons and led to a number of reforms in the governance of the EU member states. In the euro area countries, monetary policy is established by the European Central Bank (ECB). On the other hand, matters related to taxation and government expenditure remain mostly under the control of the states’ respective governments, even though there have been certain limitations imposed by the Stability and Growth Pact which entered into force on 1 January 1999.

In 2007, then ECB president Jean-Claude Trichet put forward a proposal for the adoption of some form of EU-wide fiscal union to ensure that prudent fiscal policies are implemented across all member states. Mr-Trichet, followed by many others, believed that long-term stability in the euro area does require a common fiscal policy in order to ensure the currency’s survival.

New EU regulations [implemented through the Six Pack and Two Pack of Regulations, and the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union (EMU)] have been cast within the European Semester for Economic Policy Coordination, a yearly cycle of economic policy coordination through which the European Commission undertakes a detailed analysis of EU member states' programmes of economic and structural reforms and provides them with recommendations for the next 12-18 months. In this way, sound public finances are ensured, economic growth is enhanced and excessive macroeconomic imbalances within the EU are prevented. 

The last three years of the economic crisis have recorded an unprecedented run of reforms.  Still, this credit crunch has laid bare the mutual dependence of the member states’ economies and the way in which it has increased since the creation of the EMU. Without doubt, this also shows that Europe does require more changes to the economic governance architecture in order to re-activate and restore confidence in previous achievements.  

In its Blueprint for a Deep and Genuine Economic and Monetary Union, the European Commission has already developed ideas on the framework for the coordination of major reforms to the current policy structures, step-by-step in the coming months and years.

The new system is intended to address the following issues:

-        More responsible budgeting: the headlining of both deficit and debt limits, new expenditure benchmarks and the underlying of the governments’ budgetary position are some of the criteria which will feature in this system.

-        Stepped-up surveillance in the euro area: the crisis has shown that difficulties in one euro area member state can have important contagion effects in neighbouring countries. Therefore, extra surveillance is warranted to contain problems before they become systemic.

-        Monitoring extended to economic policies: before the crisis, economic policy coordination was mostly voluntary. Member states submitted National Reform Programmes (NRPs) each year, setting out the economic reforms they intended to undertake the following year, but there was no binding process in place to monitor and correct the emergence of imbalances in national economies.

A stricter version of the Stability and Growth Pact, more commonly referred to as the Fiscal Compact was signed on March 2012 by all Member states of the EU, except the Czech Republic and the United Kingdom and entered into force on 1 January. This reform, which came into force through the Six Pack and Two Pack of Regulations, brought along with it a number of improvements and important changes to the rules and the way in which they will be enforced.  It is through this reform, that Europe is envisaging a stronger economic future.

Malta, both as an active member of the euro area and as one of the Fiscal Compact’s signatories will be seeking Parliamentary approval for its ratification in the coming weeks.  Finance Minister, Prof. Edward Scicluna, during a keynote speech which was delivered during the Finance Malta sixth Annual Conference, said that government’s decision to press on with the sanction of the Fiscal Compact represents Malta’s ongoing commitment towards strengthening the country’s already stable economic and fiscal situation to allow it to reach a point from which it can address its national debt problem in a concrete and lasting manner.  

Minister Scicluna noted that despite the turbulent waters sweeping across the euro area and which led to the current sovereign debt crisis that is threatening the stability of several European countries, Malta has performed well.

However, Minister Scicluna pointed towards Malta’s uphill struggles in its bid to outclass the crisis. The country’s continued dependence on oil as a source of energy, employment issues, low female participation in the labour market, and the high rate of early school leavers, are all issues, which need to be addressed imminently. 

Neil Portelli is an executive on EU Policy and Legislation within MEUSAC