Marek Dabrowski, Ph.D., CASE - Center for Social and Economic Research, Sienkiewicza 12, Warsaw, 00-010, Poland
The recent global financial crisis has brought new challenges to a European integration and EU institutional architecture. The main paper’s objective is to provide an early attempt to analyze these challenges in various policy spheres.
The most obvious institutional inconsistency revealed by the recent crisis concerns global character of financial markets and financial industry versus national character of financial supervision. This inconsistency can be observed at the European level too: the Single European Market of financial services does not have any kind of financial supervision authority on the EU level. Furthermore, due to very limited size of its budget (1% of GDP allocated mostly to the Common Agriculture Policy and Cohesion Policy) the EU does not have fiscal capacity to conduct rescue operations for the troubled transnational financial institutions. This means they must be rescued by the national authorities what involves a risk of refocusing them back to individual national markets. Uncoordinated national anti-crisis and rescue packages may also cause a lot of other harm: (i) distort European financial market; (ii) breach a single European competition policy; (iii) moving speculative pressures from one country to others; (iv) force other member countries to act beyond their financial means.
However, increasing fiscal capacity on the Union level to tackle adverse consequences of a financial crisis or for any other purpose would require further changes in EU treaties going beyond the Lisbon Treaty. The same concerns proposals of Union-wide countercyclical fiscal policy.
The recent crisis has also revealed other institutional dilemmas, for example, whether the system of rotating EU Presidency gives guarantees of effective response to the unexpected shocks, taking into consideration its short-term horizon (half a year) and unequal capacities of individual member countries to address global and pan-European issues.
The existence of a single European currency means, by definition, a joint and coordinated monetary policy response to external shocks and credibility insurance to more vulnerable members of the EMU. However, the bad news is that eight new member states continue to remain outside the Euro area. Thus, the question is whether the EMU incumbents should become more open to admit new members (and even encourage them to join the Euro area soon) to avoid financial crises on the EMU periphery (examples of Hungary and Latvia).
The quite similar question relates to further EU enlargement policy. Speeding up EU accession of Western Balkan countries and Turkey would mean reducing zone of potential financial fragility in the South Eastern Europe.
Going beyond EU borders, both the Union itself and its member states must become ready to coordinate their policies in many important areas (financial regulation and supervision, monetary policy, fiscal policy, trade policy, etc.) with other major partners in both developed and developing world and transfer part of their sovereignty to the global institutions if needed.
The analysis in this paper will have a policy-oriented character and will use the analytic-narrative method.