Economic policy coordination is being given much greater traction than before. In particular, the crisis has shown that a group of countries with a common currency and highly interconnected banking sectors have a great deal of interest in each others’ public finances. How each country chooses to allocate its public expenditure remains mostly its own business.
But how a country finances its public expenditure must be a matter of common interest to a much greater degree than we were willing to acknowledge in the past. Enhanced economic governance, including the European Semester, creates a framework for ensuring that budgetary policies take into account the common European interest.