The European leadership considers fiscal discipline as the only realistic remedy to the systemic crisis of the euro. I have repeatedly stated my objection to the inflexible set of policies that are being forwarded by the EU elite. I have done so because I understand the profound difference between the political and economic forms of fiscal discipline. By analyzing the two distinct types of this concept I shall elaborate further on my objection to the plans of European decision-makers.

On the economic level, the phrase “fiscal discipline” sounds like a call for lesser government intervention, through the tightening of government spending, the control of budget deficits and the restriction of sovereign debt. It gives the impression that the set of measures, policies and principles that are enshrined in the new fiscal compact will “rationalize”, “modernize” and “harmonize” the fiscal policies of all signatory states. In short the concept of fiscal discipline seems to fall within a free-market context, in its various emanations. As such my fellow Europeans, both those who believe in free-market capitalism and those who believe in a mixed economy, tend to consider the new package as “neo-liberal”. I myself strongly disagree with such a conclusion, since there is nothing libertarian about the issue in question and this will become clear by expanding on the political (real) dimension of the matter.

The political side of fiscal discipline is very precise and specific. It has three features:

1. The fiscal compact will be the first step towards an ever-closer EU that will see a further erosion of national sovereignties for the sake of granting more powers to the EU’s supranational institutions/bodies/agencies.
2. It imposes stricter rules on national governments, not for the sake of reducing state intervention in general; but of reducing only national government intervention, while increasing supranational intervention and control.
3. It follows the same Procrustean (mal)practices of the Maastricht Treaty that set the foundations of the Euro. In short the rationale of one-size-fits-all continues to dominate policy-makers, despite the lack of reforms in the real economy and the financial system; and regardless of the absence of real economic convergence that would allow for viable (de facto) harmonization.

In addition to the above three characteristics of the political (actual) fiscal discipline, the whole concept is the natural extension of the one-eyed approach certain powers have held vis a vis the crisis. It fleshes out the theory which advocated that the crisis in the eurozone is the end-result of excessive public spending, while completely omitting the situation in the real and financial economies, as well as the broader (flawed) institutional framework. Those who share such views neglect several aspects of the actual crisis in the eurozone, while they misread the facts and data available. In a nutshell they are dogmatic, rather than objective; and dogmatism is always harmful even if it seems prudent on the surface (see Monolithic fiscal discipline is not a solution but a problem).

Had fiscal discipline in the EU been about a reduction of state intervention in favor of genuine supply-side economics my approach would have been fundamentally different. Yet exactly because this proposal exists within a given political context and after taking into account the fact that no real reforms are being proposed on (a) the real economy, (b) the financial system, (c) the EU trade barriers and perverse policies, (d) the EU democratic deficit; I hereby restate my objection to the orientations of the European leadership.

EU elites are seeing the hole in the barn door and they are not looking at the barn door itself…

The difference between economic and political fiscal discipline | Protesilaos Stavrou.