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A factor limiting the scope for a fiscal stimulus at a national level is the euro area’s framework of fiscal and macroeconomic surveillance. In the absence of a central Government, the Euro area has developed a sophisticated system of mechanisms for economic and fiscal policy coordination that aims to prevent moral hazard and crises with a fiscal impact in the future. In the light of the events of the Euro crisis, this framework has recently been revised in various steps. The reforms tightened the rules. However, the framework still offers various possibilities for a flexible interpretation. Looking forward it will be key to reconcile any attempts of a flexible interpretation with the need for rigidity in order to keep the credibility of fiscal and economic surveillance in Europe.
Following the recent weakening of the growth trajectory for the Euro area and
the possible threat of economic stagnation and deflation, the recent weeks
have brought a heated debate across EMU countries on how public and private
investment could be reinvigorated. First proposals were discussed at the
Eurogroup Summit in Milan on 12 September and the debate continued at the
special European Council on growth and employment on 7 October.
There will be a hearing in the European Court of Justice (ECJ) on the ECB’s
OMT programme on 14 October. These legal proceedings go back to various
constitutional complaints that were filed at the German Constitutional Court
(GCC) in 2011 and 2012. They questioned Germany’s involvement with the
ESM and the ECB’s sovereign bond purchases on secondary markets. While
the GCC had deemed Germany’s participation in ESM as being constitutional
already in late summer 2012, it separated the aspect of the ECB’s sovereign
bond purchases on secondary markets from the proceedings and examined it
separately. Meanwhile, the plaintiffs extended their constitutional complaints
upon the ECB’s OMT announcement – although the programme had never
On October 28, the Commission published more information on three indepth
investigations into transfer pricing arrangements pertaining to
corporate taxation in Ireland, the Netherlands and Luxembourg that were
formally opened in June. The Commission expresses strong doubts that
decisions by the tax authorities of these Member States comply with the
EU rules on state aid.
The interest for higher democratic accountability in the EU is stronger than ever. Indeed, there is scope for action for stronger involvement of national legislatures at EU level. Within the time frame of the eighth legislative period of the European Parliament (2014-2019), an interinstitutional agreement is a viable option. This could lay down a working definition of subsidiarity, enhance interparliamentary cooperation, and structure the use of ‘yellow cards’. In the medium term, a stronger role for national parliaments would require outright treaty revision.
The future of the British EU membership has become one of the most pressing concerns for the EU. The EU-British relationship has always been one of special character but a number of recent developments have led to a ‘Brexit’ gaining momentum. Only the UK itself will be able to rationalise the domestic debate on EU membership. Economically, Britain and the EU are inextricably linked. Realistic estimates predict losses in the range of 1 to 3% of British GDP in case of a Brexit. Likewise, the Single Market would shrink by 15%.
On Wednesday the Commission's new President Jean-Claude Juncker unveiled the next European Commission. As a new element, Juncker has established an intermediate level of six Vice-Presidents. This new formation of the college of Commissioners could enhance governance efficiency but could also cause rivalries over matters of competence.
In recent years, the European Union has lost its appeal as the globally most important region for foreign direct investment (FDI). In 2013, China alone received more FDI inflows than all EU countries together. Apart from the rising importance of emerging markets, the economic crisis in Europe has reduced investment incentives for companies from abroad. However, especially in Europe low FDI stocks can also be linked to competitiveness deficits. Some EU countries have not received substantial FDI flows even before the crisis and would benefit substantially by attracting more investments.