Enforcing Austerity in Europe: The Structural Deficit as a Policy Target

Abstract:

In December 2011, the European Council proposed a Fiscal Pact for member states which would impose a binding limit on their structural deficits (SDs), as part of the wider set of measures intended to resolve the Eurozone's sovereign debt crisis. The proposal, adopted by 25 states in the course of 2012–2013, requires that this limit be imposed on each annual budget, with strict rules governing any breaches, subject to sanctions imposed by the Eurozone authorities. The paper examines the economic and political foundations of the measure. It is argued that the SD is meaningless as a policy target, since it is impossible to measure objectively, while politically it reinforces the depoliticisation of economic policy, under which technical experts replace elected governments in managing the national economy. The purpose of the Fiscal Pact is primarily to reassure business and financial élites that there will be no return to the state interventionism and excessive public spending that supposedly characterised the Keynesian era.