Reforming EU Economic Governance: Is "More" Any Better? WWWforEurope Working Paper No. 57

Despite significant measures to reinforce the EMU's institutional set-up, there is widespread consensus that more needs to be done in order to better deal with cyclical and structural heterogeneity in the EU. Market-based adjustment mechanisms are necessary but not sufficient to advance convergence along more sustainable growth patterns. In that context, institutional reforms advancing integration in the Euro area are often said to be desirable from an economic point of view, albeit fraught with political difficulties. This paper seeks to provide a fresh outlook on this debate by bringing forward a third, overlooked dimension, namely the feasibility, or "implementability", of governance reforms. Like national technocracies, the EU faces the risk of failure whereby the creation of institutions or the introduction of new policies do not always bring about the expected outcomes. The paper develops a multi-criteria analytical framework to assess three possible innovations of economic governance: rule-based wage coordination, contractual arrangements for reforms, and a stabilisation fund for the Euro area. The "robustness" of any proposal seeking to increase the EU's interference into national policy-making should start with a clear economic justification, while taking the dynamics of national preferences into account. However, the risks of moral hazard and institutional barriers should also be systematically internalised in the assessment.