Euro

Favourable conditions for resource reallocation and structural economic change are needed to lift the growth and employment potential of the euro area. To create these conditions, preserving government incentives for ensuring sound public finances and structural reform is crucial. The article points to a few redistributive EU policies, in place or proposed, that are or risk diminishing market dynamics and governments’ accountability for healthy fiscal positions and economic reform. The Common Agricultural Policy hampers structural change and causes high social costs. Regional policies might be able to aid cohesion, but too many objectives, rules and monitoring requirements risk reducing effectiveness. The proposed transfers to cushion ‘asymmetric shocks’ are loaded with conceptual problems and could undermine incentives to increase economic resilience. Finally, the Commission’s proposal to create an instrument designed to financially stimulate governments to carry out reforms risks producing the opposite effect. The article concludes that these policies need revision