EU Parliamentary Elections: The Fiscal Standoff

Originally published in Issue IV of the St Andrews Economist 

By: Grzegorz Janota and Maxime Segui

Do we as individual voters really have a say in the fiscal policies of the European Union? Thanks to the Lisbon Treaty, which was adopted in 2009 and came to force in 2011, the answer to that question is yes.  This month, 500 million voters in 28 member states will elect Members of European Parliament (EP) who, for the first time, will elect the next European Commission (EC) President. With this power, the EP has gained an important ability to help set fiscal direction for the EU, even though it is the EC rather than the EP which initiates legislation. The EP’s role in budget control dominates EP debates, and forms the core of the conservative parties’ platforms.

The conservative European People’s Party (EPP) is the largest party in the EP, currently holding 274 of 766 seats. Together with the Conservatives and Reformists (ECR) and Europe of Freedom and Democracy (EFD), the EPP has identified budget control as its primary aim. The conservatives believe that expansionary fiscal policy fueled the euro crisis, leading to the excessive accumulation of unserviceable government debt and a decline in consumer confidence. Conservatives therefore see fiscal restraint as key for future crisis prevention. In addition, the EPP and the ECR both argue that strengthening the single market should be a priority, and that one way of achieving this is through stricter fiscal regulation.

In contrast stands the Progressive Alliance of Socialists and Democrats (S&D), the second largest party in the EP with 197 seats, whose views balance the hawkish attitudes of the conservatives. S&D postulates that high income inequalities, trade imbalances, divergent productivity rates, and high private debt levels are the key economic issues that must be tackled by European governments through direct intervention. Consequently, they do not identify excessive spending as the primary cause of the economic crisis. Rather, the S&D believes that austerity policies inflict unnecessary pain on society and that tax increases on the rich should be preferred over welfare spending reductions. According to S&D, future crises should be prevented through greater financial market regulation.

Clearly, the two largest parties in the EP, the conservative EPP and the progressive S&D, identify different reasons for the economic downturn and hence offer different recommendations for the future. While everyone wants a strong European economy, and it is difficult to dispute that lower deficits would improve the economic outlook, what individual voters now have a voice in determining is whether healthier budgets justify the social cost of austerity.

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