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Another step for EU

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Last Wednesday (25th October) the International Monetary Fund published a document entitled “Toward a Fiscal Union for the Euro Area” which defends a greater fiscal integration.

Actually, the present crisis made clear that the role played by the monetary union is still insufficient and has created serious gaps between country-members. In the recent past, country-specific shocks have been frequent throughout the European Union (Fig.1) causing severe consequences in many countries due to their weak fiscal policies.  As IMF defends, the solution might be creating a “more robust fiscal governance framework which would gear national governments toward more prudent behavior, while some fiscal risk sharing at the euro area level would help smooth the impact of adverse country specific shocks”.Sem Título

Although EU´s fiscal and economic governance has been strengthened through legislation, there are still divergences among euro members: some are totally supportive of a deeper fiscal integration, while others refer as main priority reinforcing their own national fiscal policies. However, there is a mutual concern among these countries: “any debt mutualization might lead to moral hazard, sapping member’s motivation to undertake prudent domestic policies in the future”.

We are aware of the irregularities of labor’s markets of some EU’s countries and the efforts made to achieve equilibrium and decrease unemployment’s rates. One of the IMF goals is to create a mutual labor market between countries and so, the International Monetary Fund´s document discussed several measures to be implemented in order to make this objective feasible. In my opinion the most interesting improvement suggested to create a fiscal union was the implementation of a mutual unemployment benefits system since it would require an equal set of mechanisms to rule public services.

Furthermore, IMF asserted that would be a better option to focus this system in the short run unemployment since the percentage of long run unemployment differs by a huge amount from one country to another. In the Portuguese case, 46% of unemployed people are in this situation since at least one year (data from August, in Público). This subject is critical to IMF´s purpose because without it there was the risk of an increase of the rigidity of labor market which is exactly the opposite of the main objective.

However, it’s still a very ambitious plan because there are different rules and social protection systems for each country and the European Union is not ready to take this step. How to define the unemployment benefit given the existing monetary, economical and fiscal disparities between countries? Although it is, in fact, a good idea on paper, I think it’s impossible to implement this proposal with such disparities between European Union members.

Nevertheless, it is true that a further fiscal integration would bring benefits and decrease the likelihood of future crisis for several reasons. This fiscal integration would also diminish the disparities between country-members and create a single labor market more stable and balanced. So maybe one day the discussed IMF´s vision might be a possible and tangible scenery.

Catarina Coelho


Author: studentnovasbe

Master student in Nova Sbe

One thought on “Another step for EU

  1. After Lagarde’s recommendation to trim 10 percent of all european deposits to solve the crisis, and Blachard’s “oh sorry i got the multiplier wrong”, I do not take any of the troika’s recommendations seriously 🙂