Towards More Regulation or More Capacity-Building? The Impact of the Euro Crisis on the Fiscal and Budgetary Policy of the European Union: A Comparative Federal Assessment

Fiscal and budgetary (FBP) of the European Union (EU) mainly consist in rules (regulation) that limit the political discretion Member States (MS) have on their own FBP. Capacity-building, i.e. the establishment of FBP institutions, equipped with new powers that the EU can exercise autonomously, is rather limited. Compared to other systems of multilevel governance, the budget of the centre (the EU) is small and almost entirely dependent on transfers from the units (the MS). The first research question of the paper is whether the recent economic crisis (2009-2016; in Europe, euro crisis) has moved the EU’s FBP towards more regulation or towards more capacity-building. Which variables do explain a shift towards one of the two tools of integration (regulation or capacity-building)? After introducing these two tools and the literature on core state power integration, the paper first traces back the institutionalization of FBP before the euro crisis and then examines the measures taken to face that crisis. Based on the institutionalization of FBP before and after the crisis, the work constructs an Index of Regulation (IR) and an Index of Capacity-Building (ICB). The indexes are made of different indicators that will be explained qualitatively and measured quantitatively. For instance, during the crisis MS were forced to enshrine the principle of balanced budget in their constitutions. This indicator is likely to have a comparatively high number in the IR. The EU’s FBP seems to be peculiar. Other systems of multilevel governance (particularly federations) retain strong spending power at the centre. This is why the first research question is put within the comparative federal literature and leads to the second research question: how to assess the post-euro crisis relationship between regulation and capacity-building in the EU if compared with two cases of established federations? The work moves on analyzing the institutionalization of FBP in Germany (case of federal state) and in the United States (case of federal union) before and after the economic crisis. It looks at the (formal) constitutional provisions and allocation of competences, the (informal) intergovernmental relations and the measures adopted to face the crisis. The IR and the ICB developed for the EU are applied to each case study before and after the crisis, trying to grasp qualitative and quantitative changes (if any) in the index and the reasons behind them. The IR for the EU, Germany and the US before and after the economic crisis are compared; the same is done for the ICB. This enables to understand how the balance between regulation and capacity building in different federal systems has changed over time. It will be possible to inquire the determinants of the changes that occurred to the indexes among countries and through time. In other words, which factors account, and to what extent, for a change of the EU’s FBP towards more regulation or towards more capacity-building? The work thus aims at understanding how an economic crisis impacts on the FBP – measured through the tools of regulation and capacity-building – of different federal systems.