Economic Policy Review ISSN 1313 - 0544

National or Common European Economic Policy

Author: Veliko Dimitrov / 24.04.2010
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Greece has not been extremely successful for the last few months - the 2010 budget deficit is expected to exceed 4 times the maximum allowed by the Maastricht Treaty and the economy to shrink for a second consecutive year in 2010. Besides that, the constant strike activities in the private and public sector are going to increase even more the expected negative growth as they have not been taken into account. Moreover one could add disclosures of national statistics manipulations and generally growing suspicion in the country's stability. In the last weeks Greece's credit default swap has risen over 350 base points. This indicator in comparison to other somewhat risky countries in the Euro zone such as Spain, Italy and Portugal is 140, 130 and 180 points respectively [1]. It is worth mentioning that the current situation in Greece is not some recent ill-advised policy but a traditional long-term one. According to the regular observers it consists of unchecked budget spending, public sector corruption, high taxes and respectively tax evasion.

Since Euro is the official currency in Greece all this could not have affected its exchange rate - in the last three months the common currency depreciated over 10% to the dollar [2]. Although the depreciation of a national currency is viewed as a positive development for exporters, for everybody else it is a real impoverishment. And since Greece is not the only country in the Euro zone this directly affects the economies of the other member states.

Logically, all mentioned above created an echo at the highest European political level consisting generally of two reactions - one immediate and visible, and another hint with probable continuation. The first one was the meeting between the Euro zone state leaders, the "two big" in the EU (Barroso and van Rompuy) and the European Central Bank governor where they achieved a consensus to financially help Greece in some form [3]. The second reaction was implied a few days ago by the EU President and the European Commission chairman. It can initiate a general plan of new initiatives for national economic policy "cohesion" in the European countries. Or in Barroso's own words: "The Economic policy is not a national issue, it is a European one".

What does this mean in practice? There is no real way to precisely determine the degree of European common legislation harmonization between the EU countries but certainly it is a major one [4]; tens of thousands pages of European acts regulate substantial part of agriculture and food, environmental protection, the European institutions and their related national structures, energy efficiency, entrepreneurship, accreditation, consumer protection, financial services and much more.

The most important effect of all these regulations is the lesser extent to which the states could compete among themselves as a result of their own choice in the economic policy specter. Of course the lesser the harmonization, the bigger the freedom of choice is. This means that some EU states will experience faster and more stable development while others will fall in crises and get poorer (the case of Greece). Fortunately states have not been deprived from levers of sovereign economic policy yet especially towards the fisc. This condition should at least be preserved to prevent an EU economic decline due to lack of healthy competition between the states. And why not think of a reversal about a number of presently harmonized areas?

 

 

[1] Bloomberg

[2] http://www.x-rates.com/d/EUR/USD/graph120.html

[3] "A Greek Bailout: Is it legally possible and what will it cost EU taxpayers?", Open Europe, 2010 - http://www.openeurope.org.uk/research/greecebailout.pdf

[4] Cost of Institutional Harmonization in the ENP Countries, Veliko Dimitrov, CASE Network Studies and Analyses No.388 - http://www.case.com.pl/strona--ID-1421,publikacja_id-25386108,nlang-710.html