Bringing Macroeconomics into the EU Budget Debate: Why and How?

Abstract: The EMU has been designed without an instrument for automatic fiscal stabilization on the European level. This article highlights the seriousness of this lacuna by new empirical data, which suggest that fiscal stabilization at the national level has also worked insufficiently. This situation will hamper the EU's efforts to achieve the targets set by the Lisbon Agenda: recent theoretical contributions suggest that a positive macroeconomic environment is a prerequisite for productivity growth and structural reform which form the centrepiece of the Agenda. There are thus strong economic arguments for rethinking the set-up for fiscal stabilization policies in the EMU. We suggest three remedies for the underperformance of the automatic stabilizers: making EU expenditure sensitive to the cyclical situation of the recipient country, introducing an EU corporate tax upon the upcoming revision of the EU budget before 2013 and/or setting up a European unemployment scheme.