GROWTH POLICIES IN THE EUROPEAN UNION: A PROBLEM OF COLLECTIVE ACTION

The rationale for coordinating economic policies, and notably fiscal and monetary policies, in the European Union (Eu) rests on the existence of interdependencies - spillovers and possibly collective goods - amongst member states. Insofar as the main objective of the initial institutional setting of monetary union was to contain negative spillovers, institutions mostly consist of rules, such as the Stability and Growth Pact (SGP). It is however likely that positive spillovers and publics goods also arise as a consequence of monetary unification, and that existing fiscal rules do hamper the policies that would strengthen them. Conversely, the logic of collective action suggests that, in a monetary union made of many countries that differ in a number of respects including size, non-cooperative strategies and free-riding will tend to dominate and prevent coordination and cooperative policies, even in areas where countries share common goals. The institutional reforms contained in the new constitutional treaty do not appear to remedy these shortcomings, but instead to reinforce the empire of the rule and strengthen the opportunities for small states to stall the decisio-making process.