"National Budgeting for European Convergence." EIPAScope 1993(1):pp. 4-8

Current financial turbulence and uncertainty in Europe reinforce arguments in favour of encouraging economic and monetary cooperation but, at the same time, make such cooperation more difficult. Since the rejection by Denmark of the Maastricht Treaty, five Community currencies (those of Ireland, Italy, Portugal, Spain and United Kingdom) have devalued, two of them have left the system (United Kingdom and Italy) and others have come under serious pressure (Denmark and France). The difficulties cannot be ignored. An important component of the problem is the management and control of public expenditure. Adjustments to monetary parameters are necessary to solve urgent problems, but they are not sufficient to build a solid EMU. Excessive use of monetary instruments, with persistent budgetary deficits, is one of the main reasons for the current crisis. Long-lasting financial-market stability requires budgetary discipline. Serious movement towards EMU cannot take place successfully until the budgetary performance of Member States has converged. The European Monetary Union will function properly when Member States accept and work under nominal convergence requirements, among other things, conditions on inflation, interest rates, etc., which means having similar levels of budget deficits. Externalities and interdependence form the basis of the following important arguments identified in support of fiscal cohesion in the European Community: the need for a global European fiscal policy beyond the aggregation of 12 individually decided budgetary positions; the need to avoid the disproportionate use of Community savings by one Member State; a possible bias towards lack of fiscal restraint'; and the need for convergence in budgetary positions during the transition period (A. Lamfalussy, 1989, p. 91). Although the need for fiscal coordination and for controlling national spending in particular have been widely justified, relatively little attention has been paid to identifying and analyzing concrete measures to make this feasible. Most studies on these aspects of the Economic Monetary Union have been concerned with questions as to why the need exist for fiscal convergence and to what degree is it desirable. Attention has only recently been focused on examining what budgetary measures (rules, procedures, structures) can be taken by the Commission or finance ministries for European convergence. This last question was EIPA's main global concern when organizing the workshop Can Norms and Rules enable EC Member States to Secure Budgetary Convergence?' in December 1992. In this workshop, a mixed group of academics and experienced practitioners from the 12 Member States and the Commission met to analyze and discuss the above question and also the general consequences on national budgeting as a result of the conditions put forward by a future European Monetary Union. Presentations and discussions were multidisciplinary. Most of the relevant scientific approaches were represented: public economics, political science, public management and law. A special participant in this workshop was Professor Wildavsky, a visiting professor at EIPA at that time. The objective of the workshop was to analyze, discuss and suggest alternative policy-option initiatives at EC and national levels encouraging convergent financial management behaviour. Discussions were based on the following important questions: What is the current capacity of EC and national governments to manage public spending?'; What budgetary strategies are available to reduce deficits?'; How do social values and political culture affect spending patterns?'; What should the role of the Commission be under these circumstances?'; What is the Member States' responsibility for managing national budgets?'; What budgetary norms and rules should be proposed and negotiated to guarantee convergence of integration?'; What other orders of control should be applied and by whom?' and What strategic and structural arrangements could facilitate integration?'