Financial Times
December 13, 2011
When people talk about fiscal union in Europe – and today they talk of little else in the bierkellers and tavernas – they do not really mean fiscal union. The Dutch and the Austrians will not be persuaded any time soon to merge their tax structures and authorities with those of Greece and Italy. Nor does anyone expect them to adopt common benefit levels or health systems. “Fiscal union” means common rules for budgetary discipline across the eurozone.
Formal constraints on state budgets have been adopted widely. The modern debate began with the Gramm-Rudman-Hollings Act, which Congress approved in 1985. The legislation required that the US federal budget be balanced annually, and imposed automatic expenditure cuts if this aspiration was not fulfilled. The Act had no effect on the behaviour of the US government, which continued to run large deficits. In 2002, Dick Cheney famously summarised the experience when he said that Reagan proved that deficits don’t matter.
A range of devices achieved technical compliance with the legislation. These devices continue to prove useful, most recently in enabling the US government to keep functioning during the debt ceiling discussions. The federal budget did finally move into surplus in the late 1990s, the result of economic growth rather than legal obligation. There is, perhaps, a lesson there.
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