Euro Plus Pact
The Pact for the Euro, which was initially named the "Competitiveness Pact"[1], is a recent [2] plan in which member countries make concrete commitments to a list of political reforms which are intended to improve the fiscal strength of the country. The plan is advocated by the French and German governments for more widespread adoption by other Eurozone countries. As such it is designed as a more stringent successor to the Stability and Growth Pact, which has not been implemented consistenly. Currently the packt is not yet an official EU agreement or even a finalized strategy, but instead a evolving draft with the aim of balancing the strictness of measures laid out with the palatability of the plan for national governments and their citizens. The pact has been controversial not only because of the the closed way in which has been developed but also for the goals that it postulates.
The Original Plan
The original plan called for six policy changes to be set[3] as well as for a monitoring system to be implemented to ensure progress. The six objectives are: abolishing wage indexation, raising pension ages, creating a common base for corporate tax and adopting debt brakes. In the following sections the motivation for and criticism of each objective is summarized.
Abolishing Wage Indexation
Wage indexation is the process of adjusting wages to compensate for inflation, which reduces the value of money over time. Abolish indexation would allow for real wages to decrease increasing the competitiveness of countries as it becomes less expensive to employ people. Understandably this policy objective has been called into question by some governments such as Belgium as it reduces people's purchasing power [citation needed].
Raising Pension Ages
In countries with "pay as you go" pension systems, as most European countries have, raising pension ages has a very profound impact on government revenue as people who continue working will also pay taxes instead of requiring them. This too is a controversial proposal as can be seen in the strikes in protest of France raising its pension age in 2010.
Creating a Common Base for Corporate Taxes
Creating a "common base" means unifying tax rates, this has been opposed by countries such as Ireland, which have low corporate tax rates.
Adopting debt brakes
The word "debt brake" comes from the German "Schuldenbremse", an amendment to the constitution legally limiting the size of sovereign debt countries are allowed to run. These have been implemented in Switzerland in 2003 and in Germany in 2010[4]. Debt breaks can vary in strictness and details of the intended implementation are not yet clear, but the motivation for this rule is to create a legally binding policy instead of the current budget guidelines on deficits which have been not been implemented by member countries.
Criticism
While the pack has been critizised for imposing too harsh conditions it has, conversley also been called into question for not being strict enough in is requirements to implement reform. [5]
References
- ^ http://www.economist.com/node/18332786
- ^ http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ec/119809.pdf
- ^ http://www.economist.com/research/articlesBySubject/displaystory.cfm?subjectid=3856661&story_id=18330371
- ^ http://de.wikipedia.org/wiki/Schuldenbremse
- ^ http://www.voxeu.org/index.php?q=node/6206