European Union Fiscal Governance as Austerity Reinforcement: Much Ado about Nothing

The range of fiscal policy measures adopted at the EU level since 2010 -- the Six Pack, the Two Pack and the Fiscal Compact Treaty -- has given rise to claims of a significant reinforcement of fiscal policy constraint and even the rise of an 'Expenditure State' (Begg 2013). This article presents the counter argument that these reforms correspond largely to previous agreements on fiscal policy at the EU level which allowed for considerable intergovernmental margin of manoeuvre. For most Euro Area Member States (apart from the 'programme' countries), reinforced fiscal policy constraint has been achieved via the German Schuldenbremse (debt break). This is not the direct constraint of emulation -- with national laws on fiscal consolidation required by the Fiscal Compact Treaty. Rather fiscal constraint has been achieved by way of market expectations created because of the growing divergence in the German fiscal position and that of a range of other Euro Area Member States (and notably France) -- but not because markets necessarily prefer fiscal consolidation. Fiscal consolidation will take place because significant divergence in national fiscal positions undermines market confidence in Euro Area stability more than the absence of binding rules.