Comments on Guido Tabellini
Jean Pisani-Ferry
Université Paris-Dauphine
Milan, July 7, 2003
A question of perspective
• Tabellini: assesses Convention achievements from
the perspective of fiscal federalism
– Allocation of tasks depends on trade-off economies of
scale + spillovers vs. preference heterogeneity
– Clear delimitation of competence between the Union
and the MS
– Coordination of national policies: « an illusion » for
foreign policy; « negligible benefits », « risks of
mistakes » for fiscal / tax policies
• Provides clear benchmark, criteria for assessment
(Most) economists dislike
coordination
Long list of reasons:
• Weak rationale (spillovers)
• Low delivery (high ambitions, weak instruments)
• Confuses assignment, destroys accountability
• Political bargaining weakens policy competition
• Macro coordination may endanger monetary stability
Not always convincing
• Budgetary spillover through price inflation
• Desirability of tax competition rests on judgement on effectiveness of
democratic institutions
But EU increasingly relies on it
• Since 1990, the EU has moved away from fiscal federalism
with rise of coordination:
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Fiscal policies within EMU, Eurogroup
Employment and structural reform (Lisbon strategy)
Regulatory policies (partnerships of national authorities)
Competition policy (decentralisation, reliance on network)
(Defence, foreign policy)
• Return to standard model would imply narrowing down the
range of common objectives (getting rid of Lisbon).
– Is it desirable?
– Is it politically feasible?
Convention rationalises powersharing
• Move away from fiscal federalism template
– Permanent presidency for European Council, ECOFIN
– Commission less regarded as embryo of EU government
– Executive responsibilities for Council
• Makes coordination a new pattern of governance:
– Exclusive competences (EU has legislative power):
• competition, trade, money
– Shared competences (EU has legislative priority):
• internal market, agriculture, transport and energy, cohesion, ..
– Special competence for coordination
• of economic and employment policies
– Supporting competence (support, coordination, no harmonisation)
• industry, health, education, ..
Why? Politics and economics
• EU quest for legitimacy
– Responds to citizens’ concerns (employment, growth…)
– More of it if EP becomes more powerful
• Subsidiarity-inspired intergovernmentalism
– MS reluctant to delegate new powers to EU, insist on
intergovernmental method (at least as a transition)
– Commission no more regarded as government, Council moves
towards endorsing executive responsibilities
• Move away from policy-instrument correspondence
– Budgets: spillovers from deficit, not spending level/composition
– EU endorsed goals, but instruments in the hands of MS (Lisbon)
But coordination instruments are
weak, results unconvincing
• Unanimity preserved for:
– Fiscal policy (except for SGP sanctions)
– Tax policy (except in cases of fraud)
• Eurogroup has no formal powers
• Lisbon strategy has no teeth,
– OMC = dialogue, benchmarking
– Problem of delivery
• Effectiveness of coordination low, it is bound to decrease
with enlargement
– Increase in transaction costs
– Increase in heterogeneity
Link with budget
• EU budget has no relationship with EU priorities
– Considerable inertia in spending priorities
– Allocation dwarfed by redistribution to regions (why?) and
individals in a specific sector (why?)
– Lack of own resources leads MS to bargain on the basis of juste
retour
• Small budget should either:
– Concentrate on provision of limited number of EU public goods
– Or be used as incentive mechanism to trigger coordination
– (Does not rule out redistribution to poorer MS)
• Current EU budget not appropriate from either perspective
Building blocks for change
• Refocusing the EU budget
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Less inertia
Less ‘static’ redistribution to MS
More EU-wide programme-based spending
More incentives to MS or subnational entities
• Change in financing
– Getting rid of juste retour
– A European tax (but problems with selection)
• Convention proposals on compulsory spending are
a (small) step in the right direction
Conclusions
• Shared powers (Cassese) are here to stay
• Make it work
• Use the budget as incentive to cooperate