EMU – Fiscal Challenges: Conclusions For the New EU Members.

The aim of the paper is to evaluate fiscal challenges which are facing the Economic and Monetary Union countries after four years of monetary union functioning. Then, the author formulates conclusions for accession countries which are planning to become members of the Economic and Monetary Unions in the near future. The first part of the paper deals with the criteria of fiscal stabilization within EMU, their significance and links to economic growth. On the one hand, these criteria limit possibilities of using fiscal policy to stabilize economy after economic shocks. On the other hand, the fiscal criteria have also a positive influence because of the introduction of discipline into the economic policy, which is created by the policy makers who often act under the pressure of their political parties. At this point, short- and medium-term economic policies and long-term political decisions come into conflict. After four years of EMU functioning, the budget deficit and public debt have appeared as challenges again. The selected countries discussed are: Portugal, Germany and France. In the case of fiscal stabilization, governments of many EMU countries increased the tax burden rather than cut budget expenditure to achieve a lower deficit. In Germany, France, Portugal and many other countries governments did not implement radical structural reforms of public finance. The new EU member’s countries are facing the necessity of economic adjustment to the convergence criteria, and among them - criteria of fiscal stabilization. Experiences of selected EMU countries let us conclude that nominal convergence should result from real convergence processes. Thus, fiscal stabilization should result from deep changes in the structure of the public finance and tax systems.