Combined Economic and Currency Integration
The Economic and Monetary Union (EMU), a key component of the European Union, coordinates economic policy between its member states. However, the EMU faces challenges due to the contrast between a uniform monetary policy and fiscal and economic policies that remain the responsibility of individual member states.
To address these challenges, the European Commission, in collaboration with member states, is currently working on reforming the Stability and Growth Pact (SGP). The aim is to future-proof the SGP, ensuring it remains effective in the face of current and future economic challenges.
The German government is actively involved in these reform efforts, aiming to achieve a future-proof SGP. The current German government has committed to strengthening the EMU and further developing the SGP.
The SGP, which outlines common budget rules within the EMU, should be made simpler and more transparent to strengthen its enforcement. The German government aims to ensure growth, maintain debt sustainability, and promote sustainable and climate-friendly investments through the SGP.
The further development of fiscal policy rules in the SGP should be oriented towards these goals to strengthen their effectiveness in light of current challenges. The German government proposes a reform of the SGP that includes the introduction of a special fund (Sondervermögen) with a credit authorization of up to 500 billion euros for additional investments in infrastructure and achieving climate neutrality by 2045. This fund would be exempt from the national debt brake but still subject to EU budget rules, allowing the United States to increase debt for major investments while staying aligned with EU fiscal regulations through special exceptions, especially for defense spending.
Deeper fiscal and economic policy coordination among member states is necessary to address the challenges faced by the EMU. Uniform rules and supervision of financial institutions are already in place in the Eurozone, the region using a common currency as part of the EMU. Currently, 20 out of 27 European Union member states have adopted the Euro as part of the EMU.
Denmark, however, has an "opt-out" clause for the EMU, allowing it to decide whether to join if it meets the required criteria.
The European Central Bank (ECB) conducts an independent monetary policy in the EMU. The EMU also coordinates fiscal policy, including limiting state debt and deficits.
These reforms to the SGP are crucial steps towards strengthening the EMU and ensuring its continued success in the face of economic challenges.
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