Fiscal adjustment and economic growth in the European Union

The current world economic crisis induced countries to launch wide-scale spending programmes all over the world. Member states of the European Union have not been an exception to this trend. While deficit spending may increase the aggregate demand, it can also accelerate indebtedness and make the required spending cuts politically risky later on. However, deficit financing is not a new phenomenon in the EU; it has been widely practiced in the last couple of decades. As the crisis seems to come to an end, countries with huge deficits should adopt exit strategies now, thereby reducing deficit and debt and reintroducing fiscal discipline, a requirement laid down in the Stability and Growth Pact. Nevertheless, former adjustment processes can provide ample evidence for successful and politically viable fiscal consolidations. In certain cases, even economic activity started to accelerate as a response to the welldesigned adjustment measures. Based on the previous experiences of EU states, the aim of this paper is, therefore, to identify the conditions that may determine a fiscal consolidation to be successful in terms of a reduced debt ratio and a positive economic growth.

Rules-based economic governance in the European Union: A reappraisal of national fiscal rules.

The economic and financial crisis of 2007/2009 has posed unexpected challenges on both the global and the regional level. Besides the US, the EU has been the most severely hit by the current economic crisis. The financial and banking crisis on the one hand and the sovereign debt crisis on the other hand have clearly shown that without a bold, constructive and systematic change of the economic governance structure of the Union, not just the sustainability of the monetary zone but also the viability of the whole European integration process can be seriously undermined. The current crisis is, however, only a symptom, which made all those contradictions overt that were already heavily embedded in the system. Right from the very beginning, the deficit and the debt rules of the Maastricht Treaty and the Stability and Growth Pact have proved to be controversial cornerstones in the fiscal governance framework of the European Economic and Monetary Union (EMU). Yet, member states of the EU (both within and outside of the EMU) have shown an immense interest in adopting numerical constraints on the domestic level without hesitation. The main argument for the introduction of national fiscal rules was mostly to strengthen the accountability and credibility of national fiscal policy-making. The paper, however, claims that a relatively large portion of national rules were adopted only after the start of deceleration of the debt-to-GDP ratios. Accordingly, national rules were hardly the sole triggering factors of maintaining fiscal discipline; rather, they served as the key elements of a comprehensive reform package of public budgeting. It can be safely argued, therefore, that countries decide to adopt fiscal rules because they want to explicitly signal their strong commitment to fiscal discipline. In other words, it is not fiscal rules per se what matter in delivering fiscal stability but a strong political commitment.

Kormányközi szerződéssel a költségvetési stabilitásért? (Intergovernmental agreement for fiscal discipline?)

Az EU fiskális szabályai bevezetésük óta az akadémiai kutatások homlokterében állnak. A nemzeti szintű fiskális szabályok vizsgálata ugyanakkor egy jobbára negligált területe maradt a nemzetközi kutatásoknak. Az idén életbe lépett új költségvetési paktum éppen ezen nemzeti szintű, a költségvetés egyensúlyát előíró szabályok bevezetésétől várja a fiskális fegyelem meghonosítását az EU országaiban. A tanulmány megmutatja, hogy az olyan nemzeti szabályok, mint a német aranyszabály, nem tekinthetők a fiskális fegyelem egyedüli letéteményeseinek. Ezek ugyanis többnyire egy átfogó reformcsomag részei voltak csupán. Amire szükség van ezért, az egy átfogó és átgondolt államháztartási reform, valamint a szabályok nemzeti birtokbavétele. Az új paktumot is ezen pontokon volna szükséges erősíteni. ______ The scrutiny of EU fiscal rules such as the Maastricht criteria and the Stability and Growth Pact has become the focus of many scholarly works. The study of domestic fiscal rules, however, has remained a neglected part of research. The new Treaty on Stability, Cooperation and Governance (TSCG), however, makes the analysis of domestic fiscal rules highly relevant, since the treaty requires member states to adopt a balanced budget rule. The paper demonstrates that domestic rules such as the German golden rule were hardly the sole triggering factors of fiscal discipline; rather, they served as the key elements of a comprehensive reform package. Thus, the paper argues that without bold and comprehensive reforms of the general government on the one hand and national ownership on the other hand, no fiscal rule can be effective enough. The new TSCG should be strengthened, therefore, in this particular aspect.

The financial stability and access to financing of SMEs in Hungary

The present study was prepared within the framework of cooperation between the Competitiveness Research Centre, operating within the Institute of Business Economics of Corvinus University of Budapest, and the National Association of Entrepreneurs, based on a commission from the latter. Th e goal of the study was to survey the self-financing capabilities and borrowing opportunities of majority Hungarian-owned small and medium-sized enterprises (SMEs), and to identify potential problems. The results of the research revealed that the high proportion of owner’s equity in the financing structure is not due to difficulties with borrowing, but because enterprises that cover their fi nancing primarily from their own resources have other financing opportunities at their disposal. Although general satisfaction with banks shows a diminishing tendency, it can still be interpreted favourably. The majority of companies have not encountered serious borrowing difficulties. With regard to the system of competitive tenders, company managers have sensed some improvement, but general satisfaction is still lacking. Although the research results suggest that the primary obstacle to growth in 2013 was not the lack of credit or external funding, it is important to emphasize that start-ups, young enterprises and micro-enterprises, which struggle the most with financing worries, were not represented in the analysed database.

"Rentier States" or the Relationship between Regime Stability and Exercising Power in Post-Soviet Central Asia

The paper intends to give an insight into the relations of the economic and political systems of the Central Asian republics using the theoretical framework of the "rentier economy" and "rentier state" approach. The main findings of the paper are that two (Kazakhstan and Turkmenistan) of the five states examined are commodity export dependent “full-scale” rentier states. The two political systems are of a stable neo-patrimonial regime character, while the Kyrgyz Republic and Tajikistan, poor in natural resources but dependent on external rents, may be described as "semi-rentier" states or "rentier economies". They are politically more instable, but have an altogether authoritarian, oligarchical “clan-based” character. Uzbekistan with its closed economy, showing tendencies of economic autarchy, is also a potentially politically unstable clan-based regime. Thus, in the Central Asian context, the rentier state or rentier economy character affects the political stability of the actual regimes rather than having a direct impact on whether power is exercised in an autocratic or democratic way.

Megmenthető-e az euróövezet? (Can the eurozone be saved?)

Az euró válságának szélesebb globális összefüggései vannak, mind a kiváltó okait, mind a nemzetközi pénzügyi rendszer működésének hiányosságait illetően. Az európai monetáris integráció szilárd reálgazdasági alapokon nyugszik. Az euró teljesítménye mind az árstabilitás, mind az árfolyamok ingadozása tekintetében megfelelőnek tekinthető. Az euróválság szuverénadósság-válság, és leginkább a zóna egyes (déli) országait érinti. Az euróválság okai többrétűek: ezek között az eurózóna hibás konstrukcióját, téves koncepcionális feltételezéseit, a politikai kompromisszumokkal folyamatosan megnyomorított működését említhetjük leginkább. A közös pénz önmagában nem oka a válságnak és nem is bűvös ellenszer. A hibás gazdaságpolitikáért belül ugyanúgy bűnhődni kell, mint kívül. Görögország, vagy Írország elsősorban nem azért került válságba, mert tagjai az eurózónának, hanem mert hibás gazdaságpolitikát folytattak. Nem zárható ki az eurózóna szétesése, de kicsi az esélye. / === / The euro crisis has broad global connections, both in terms of deficiencies of the international monetary system, and of the crisis of the global financial markets. The European monetary integration is based on strong real-economic foundations. The performance of the euro has been satisfactory both in terms of price and exchange rate stability. The present crisis is a sovereign debt crisis, and it is concentrated mainly on some Southern members. The causes of the crisis are manifold: wrong institutional and policy structures, mistaken conceptual assumptions, and the distortion of its operation by continuous political compromises. The contradictions between common monetary policy and the national fiscal policies, the failure of disciplining role of the markets, the weakness of control of national fiscal policies, the dangers of "one size fits all" monetary policy, the failure of finding the proper national policy mixes, particularly in terms of income and structural policies, and the underestimation of social and cultural differences, can be particularly stressed. The common monetary policy failed to secure the necessary equilibrium among liquidity, stability and growth. Greece and Ireland got in crisis not because they are members of the euro zone, but because of their mistaken economic policies. The collapse of the euro zone cannot be excluded, but the chances of it are limited.