Major weaknesses of the economic governance of the Eurozone and the way to improve it by Minister Philippe Maystadt and Professor Adam Szyszka
During his presentation at Warsaw School of Economics today Phillipe Maystadt, former President of the European Investment Bank listed five weaknesses of the Eurozone and solutions how to overcome them.
First weakness, according to Dr. Maystadt, is that the Stability and Growth Pact focuses only on budgetary discipline, ignoring other equally important aspects, which has led to the crisis situation in countries such as Ireland or Spain.
With the Six Pack adopted in the end of 2011, which introduces a macroeconomic excessive imbalance procedure, there will be other indicators that may detect risks of any kind at an earlier stage.
Secondly, the Stability and Growth Pact is deficient, due to, for instance, the lack of distinction between common expenditures and investments.
As a third weakness Mr. Maystadt pointed out the shortcoming of governance within the Stability and Growth Pact. In order to tackle this problem, there was created a newer and more credible mechanism for sanctions within the Six Pack. Contary to the previous solution, sanctions will apply now automatically, unless the qualified majority votes differently.
Another weakness mentioned is the lack of mechanism of the crisis management and resolution finding in the Treaty of Maastrictht.
Finally, Mr. Maystadt mentioned the problem of the banking supervision that still remains purely with the Member States on the national level. He believes, however, there is a need of introducing an European Supervisor.
He explained that overcoming these weaknesses will allow a different kind of Union to emerge. However, in order to have a well functioning European Union it is crucial for the Member States to adopt economic decisions made at European level
Professor Adam Szyszka focused his presentation on the psychological aspect of the economic crisis in Europe and enumerated the following phenomena:
- extrapolation bias
- people focused on nearest future
- underestimated risk (because of overconfidence)
- bad news travel slower
- herding – people act on basis of their observation of other people
the debate was coorganised by the Warsaw School of Economics, Embassy of the Kingdom of Belgium, Belgian Business Chamber and CASE - Center for Social and Economic Research
