What Kind of Socio-Economic Order Do We Need in Europe?
What Kind of Socio-Economic Order Do We Need in Europe?

Summary/Abstract: The purpose of the paper is to examine the economic rationale of the basic axiom of the economic policy making in the European Union, namely its insistence on the need to achieve balanced public finances. The examination proceeds through the restatement of essential identities tying up financial accounts of the public and private sectors. It is shown that the elimination of the public sector deficits is incompatible with the private sector preference for the accumulation of net financial wealth. Moreover, public sector deficits are shown to be normally essential for positive profits of the business sector. Concluding, the paper argues that the fiscal policy orientation of the European Union (epitomized by the Maastricht Treaty, and its recent variants such as the Fiscal Compact) lacks proper rationale. As such, this orientation may be seen as co-responsible for the weak long-term economic performance of the EU (as well as contributing to its recent crises).

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