Resilient and sustainable economic and monetary union in Europe

Specific challenge: Economic and monetary integration in Europe, underpinned by the creation of the euro, has changed the landscape of international monetary relations with far reaching impacts both for the EU and its external partners. However, the financial and economic crisis has demonstrated that this process is not complete and it still has a number of important shortcomings that undermine the stability of the European financial system and the European economy as a whole.

These deficiencies are related to the ineffective mechanisms of fiscal policy coordination and supervision, and the lack of a coherent regulatory framework for the financial sector, despite its growing impact on the real economy. With mounting public debt, the crisis has also highlighted the importance of sustainable fiscal revenues. Also, despite significant efforts over the years to increase economic convergence in the EU, substantial macroeconomic imbalances remained and were even exacerbated by the crisis. Furthermore, the Blueprint for a deep and genuine EMU underlined the need to progress towards developing some stabilisation tools and a fiscal capacity.

These imbalances, both globally, and within the EU, have also been often mentioned as one of the important factors at the roots of the crisis itself. Due to this, it is crucial for an effective crisis recovery and the long-term sustainability of the European economic and financial system that the economic and monetary integration process is completed, with effective mechanisms put in place to address all of these deficiencies at the same time, in a comprehensive way.

Scope:  The research to address this challenge should in particular focus on the following key dimensions (proposals do not need to cover all dimensions and may include additional aspects which are relevant to the specific challenge):

1)             Effective mechanisms of fiscal policy coordination in the EU

Research should explore the problem of fiscal sustainability in the EU, also in comparison with other major world economies, as well as investigate what degree of fiscal policy coordination at the EU level is needed to ensure long-term sustainability and the effective stabilisation of the economy, notably in case of asymmetric shocks and if the different mechanisms already put in place form a sufficient framework to achieve this. In this context, different potential models of a fiscal union for Europe should be explored and comprehensively assessed, including potential stabilising effects of different forms of shock-absorption mechanisms at the central level as outlined in the Van Rompuy Report, their institutional characteristics, political feasibility and socio-cultural impact as well as the potential to further enhance the economic stabilisation of the European economy[1]. Research should also investigate the practical aspects of fiscal policy coordination, fiscal rules and supervision in the EU, including the role and interplay of different national and European institutions as well as the political and cultural context of enforcing fiscal discipline, in order to identify potential loopholes that still need to be addressed.

2)             Fair and sustainable taxation

Research should make a comparative study of European and non-European taxation systems taking into account factors like, for example, objects of taxation, tax base, tax level, redistributive effects, complexity, control systems and legitimacy. The compatibility of the European tax systems and the broader impacts of the different tax regimes at the European level should be assessed, including the implications for economic development as well as widening socio-economic and gender inequalities. The analysis should also cover the potential of further steps of European tax harmonization including the perspective of true own resources for the EU budget.Due consideration should also be given to ethics, environmental and climatic sustainability, as well as values prevailing across the EU regarding fair taxation.

3)             The impact of macroeconomic and social imbalances on economic stability

Research should analyse the main features of macroeconomic, social and financial imbalances within and between the EU Member States and how they evolved throughout the history of European integration as well as what their implications are, in particular for long-term growth as well as economic and financial stability. A particular attention should be given to the analysis of spill over mechanisms from such imbalances from one Member State to another. It should also be investigated how to more effectively address macroeconomic and social imbalances in the EU and whether the current mechanisms, such as the Macroeconomic Imbalances Procedure and the Excessive Imbalance Procedure, provide an effective and robust framework to deal with this challenge.

4)             The global impacts of the crisis in Europe and the international monetary relations

Research will review the evolution of the global monetary system in the last decades, with particular emphasis on the consequences of the introduction of the euro. It should explore the impacts of the crisis on global power shifts, including the role of different currencies in international trade, capital flows and monetary reserves. The strategies of monetary authorities and their implications at the EU and world level should be analysed with respect to economic activities, including trade, employment, growth and financial flows. Research also needs to investigate the growing global interdependences of the financial and monetary systems and their implications for effective economic policies, including the rising challenges for global governance and international organisations. The activities should also consider different scenarios of the future evolution of international monetary relations and their implications for Europe.

The research is expected to comprehensively address one, or possibly a combination of, the above-mentioned dimensions. In so doing, proposals may also cover other issues relevant for building a more resilient and sustainable economic and monetary union in Europe. Proposals should in particular take stock of the relevant past and existing research projects funded at the EU level.

The Commission considers that proposals requesting a contribution from the EU of between EUR 1.5 and 2.5 million would allow this specific challenge to be addressed appropriately. Nonetheless, this does not preclude submission and selection of proposals requesting other amounts.

Expected impact: Research is expected to advance theoretical and practical debates on a comprehensive framework for a more resilient and sustainable economic and monetary union in Europe. It will provide a critical assessment of the different concepts about effective economic governance in the EU and their practical implications, as well as of the mechanisms already put in place. These activities will contribute to a better understanding of the challenges facing the EU governance system currently and in the future, from the economic, political and technical point of view, taking into account both internal and external challenges. In exploring different possible solutions and scenarios, projects are expected to develop a comprehensive and coherent vision on how to ensure the long-term sustainability and resilience of the European economic system. New concepts, methodologies and tools developed by research will support European decision makers and practitioners in the setting-up and implementation of a reinforced governance architecture in the EU.

Type of action: Research and innovation actions

[1] As reflected in the Blueprint for a deep and genuine EMU and by the Communication on strengthening the social dimension of the EMU.