Success of euro depends on stability pact reforms, says senator
THE planned reforms of the Stability and Growth Pact must succeed if the euro is to hold together, Fine Gael senator Paschal Donohoe told the annual conference of Dublin economists in Kenmare.
But there were obvious risks of tension between the EU Commission and national governments because of the extensive powers being proposed for the Commission.
The EU executive will be able to apply sanctions itself to countries which run excessive deficits or debt levels and only a vote in the Council of Ministers could overturn this.
"This is a 'semi-automatic' system and means a fundamental change to the world in which fiscal policy is made," Sen Donohoe said in a paper he co-authored with economist Rodney Thom.
Department of Finance senior official Michael McGrath, in a paper on the same subject, said the eurozone countries in particular were at a critical juncture.
"It is clear that there needs to be greater oversight of member states' budgetary performance, and probably greater use of EU sanctions.
"The views of the Heads of State will be important here. Ireland sees the proposals . . . as providing an opportunity to change and improve. But, like all things in life, the devil will be in the detail," Mr McGrath said.
Senator Donohue pointed out that the reform proposals would prevent governments increasing public spending by more than expected growth in GDP, which represents a severe fiscal restraint.
"But we would question whether these proposals will work in terms of preventing fiscal crises, which is what matters.
"The establishment of national fiscal councils to advise governments, backed up by Commission powers and the attitude of financial markets, might be a better approach," he said.
Cormac O'Dea of the UK Institute for Fiscal Studies told the conference the British coalition's plans rely heavily on spending cuts rather than tax increases, which will mean cuts in spending on public services on a scale not seen for at least 50 years.