“EU Fiscal and Monetary Institutions. Past, Present and Future”

The opening session included two papers. The first paper by Gordon Tullock advanced doubts on the ability of the European Central Bank to control inflation. The second paper was by Giancarlo Gandolfo who presented a joint paper written with Daniela Federici that examined the consequences of building a new theoretical model where endogenous growth and the NATREX concept are integrated. The second session included two papers. The first paper was by Peter Bernholz who discussed indebtedness and deficits in EU countries and pointed out that what we perceive as improvements in the EU financial situation is only partly attributable to the Maastricht Treaty and the Stability and Growth Pact. The session ended with a paper by Kwan Choi on optimal tariffs in the financing of a public input that the government can produce either directly or by purchasing the public input produced by the private sector. He argued that due to the distortionary nature of tariffs private production of the public input could result in higher tariffs. On Friday, May 18th, there were sessions in the morning and afternoon. The opening session started with a paper by Giuseppe Eusepi. He argued that the future European scenarios will depend on whether it is chosen tax harmonization or tax competition. The second paper of the session was by Marco Buti. Buti traced the vicissitudes that have led to the present EMU and pointed out that a successful EMU will depend on its credibility. The last morning session included two papers. The first by Daniele Franco and Fabrizio Balassone. By reviewing the literature on budgetary rules, the authors tried to assess whether the EMU issues on public finance are to be regarded as innovative or not. They emphasized the contrast between the need for supranational fiscal rules for the EU and fiscal responsibility, which is still in the hands of national governments. A paper followed by Rolf Strauch and Juergen von Hagen. Strauch discussed the role of formal fiscal restraints and the feasibility limits that they involve. By drawing on US experience, where balance budget requirements have existed for decades, the paper argued that the Maastricht Treaty and the Stability and Growth Pact could reveal themselves as not sufficiently tight restraints. The first afternoon session started with a paper by Bruno Frey and Alois Stutzer. Revisiting the Benthamite theory of utility, Frey introduced the concept of procedural utility and argued that outcome utility and process utility can be distinguished and empirically measured. The second paper was by Geoffrey Brennan. Brennan examined the political economy of regulation, which has an important role in the EU agenda, and discussed the pros and cons of a regulation/budgetary substitution. In the second afternoon session Daniela Federici and Raffaella Sadun analyzed the role of fiscal policy on the current account balance and proposed an alternative econometric approach to the standard Obstfeld Rogoff model. The last paper was by Martin Paldam. Using an Edgeworth Box, he argued that a small country such as Denmark takes advantages of the unification process. Such advantages are, however, different depending on whether they are evaluated by the élites or by population in general. On Saturday, May 19th, there were only two sessions in the morning. The first session started with a paper by Charles Beat Blankart and Dennis Mueller that outlined two alternative parliamentary models: the model of a pure representative democracy and that of a pure two-party competition. Blankart argued that in reality only mixed systems can be found, and observed that reforms should lead towards the one or the other of the basic models. Christoph Schaltegger presented a joint paper written with Dominique Kuttel that discussed the central role that institutions play on political decisions and drew on Swiss data involving twenty years to argue that competitive fiscal institutions induce local governments to mutually limit fiscal pressure. Friedrich Schneider presented a paper that discussed the challenge posed to international monetary institutions after the Asian crises. In particular he suggested a more powerful international monetary institution acting as a central bank that should fully replace national monetary institutions during crises. The final paper was by Pier Carlo Padoan. By using an evolutionary approach, he emphasized how groundless the early critiques of EMU in terms of feasibility and efficiency are. He reported that the European monetary system has generally worked quite well despite the pressure of both external shocks and internal imbalances. Giuseppe Eusepi closed the conference with his hope that it might lead to further investigation on the questions raised. He expressed gratitude to the speakers for the high quality of the papers, to the discussants for their lively and informed comments. He warmly congratulated the chairmen on their efforts in ensuring that the rules on presentation/discussion time were followed. He pointed out that during the three days the air was one of informality, but no one forgot for a minute the scientific rigor.