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The Possibility of a Euro Finance Minister – A New Office Bringing Little Added Value to Europe

Summary:
EconPol Analysis on the EU Reform Debate Creating the office of “Euro Minister of Economy and Finance” will not be able to solve the main problems facing fiscal coordination in Europe. This is the finding of a recent study conducted by a European team in the EconPol Europe research network and coordinated by the Centre for European Economic Research (ZEW), Mannheim. The study was presented at a seminar in Brussels today. “The creation of a European finance minister should by no means be a priority in Eurozone reform. We run the considerable risk of creating a new, impressive title with no actual substance. This could ultimately end up doing further damage to the reputation of the Eurozone,” says Friedrich Heinemann, head of the ZEW Research Department

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EconPol Analysis on the EU Reform Debate

Creating the office of “Euro Minister of Economy and Finance” will not be able to solve the main problems facing fiscal coordination in Europe. This is the finding of a recent study conducted by a European team in the EconPol Europe research network and coordinated by the Centre for European Economic Research (ZEW), Mannheim. The study was presented at a seminar in Brussels today. “The creation of a European finance minister should by no means be a priority in Eurozone reform. We run the considerable risk of creating a new, impressive title with no actual substance. This could ultimately end up doing further damage to the reputation of the Eurozone,” says Friedrich Heinemann, head of the ZEW Research Department “Corporate Taxation and Public Finance” and coordinator of the research team.

The creation of this position is one of the central reform ideas for the Eurozone suggested by French President Emmanuel Macron. The European Commission envisions such a minster assuming a far-reaching role in steering and coordinating EU financial policy.

Based on current plans being considered, a Euro Minister for Economy and Finance would act as representative for the Eurozone, not only to the rest of the world, but also within the structure of the International Monetary Fund. The minister would also be responsible for coordinating structural reforms and fiscal policy in the Member States and controlling European budget instruments, while also playing a considerable role in monitoring the implementation of the Stability and Growth Pact. The main question the ZEW/EconPol analysis sought to address was the extent to which this new office could explicitly contribute to the resolution of the main issues facing the Eurozone in the following four areas:

Fiscal sustainability
The Stability and Growth Pact’s disappointing lack of effectiveness can largely be attributed to strong political interference. For this reason, the study recommends that the European Fiscal Board assume a more prominent role as an independent budgetary watchdog. According to the study, giving considerable influence to a politically motivated minister who is also a member of the Commission would be a step in precisely the wrong direction.

European public goods
The authors of the study were not particularly optimistic that a finance minister would be in a position to reorient the EU budget to focus more on truly European public goods. The over-representation of agriculture and cohesion policy in the EU budget is the result of the vested interests of the Member States, an issue that a new minister has little chance of curtailing.

Stabilisation policy
The analysis is somewhat more optimistic with regard to the minister’s potential role in coordinating stabilisation policy. At a time when new instruments for the Eurozone are being created, controlling these instruments would naturally fall under the purview of the minister. However, the ZEW/EconPol team found it unrealistic that this “superminister” would be able to persuade Member States with healthy finances to increase spending in order to stimulate growth in other economies.

Structural reforms
The analysis also concedes that the minister could play a helpful role in improving the incentives for Member States to implement structural reforms that are conducive to growth. A new minister could ensure a more effective exchange of information between countries and also create financial incentives for reform.

For more information please contact: Prof. Dr. Friedrich Heinemann, Phone 0049 / 621/ 1235-149, E-mail [email protected].

Clemens Fuest
Clemens Fuest took over from Hans Werner Sinn as chairman of the IFO Institute in April 2016. He is professor at the Faculty of Economics of the University of Munich.

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