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AbstractShort‐term theories on the determinants of fiscal consolidation underestimate that fiscal regimes are as entrenched as any other institution of a political economy. The case of Italy's fiscal adjustment in the run‐up to EMU is used to show that external constraints and well‐functioning institutions may well be just auxiliary. The success factor in the country's macroeconomic stabilization was that competing socio‐economic interests, while all in favour of disinflation, could eventually agree on the size and composition of the adjustment thanks to side‐payments in the form of a devalued currency. These are unavailable under EMU, which explains why the fiscal reform momentum slowed down, notwithstanding EU fiscal rules. Domestic preference formation goes back a long way: it is associated with an incremental process of institutional change that started in 1981 with the enhanced independence of the Bank of Italy and continued with labour market and budget reform in the late 1980s.

The EU is in the process of negotiating its 2014-20 financial framework. Failure to reach an agreement would imply a delay in the preparation of the strategic plans each member state puts together to explain how it will use Structural and Cohesion Funds. Even if solutions are found - for example annual renewals of the budget based on the previous year's figures - there will be political and institutional costs. EU leaders have too often and too forcefully advocated the use of the EU budget for growth to be able to drop the idea without consequences. · The overwhelming attention paid to the size of the budget is misplaced. EU leaders should instead aim to make the EU budget more flexible, safeguard it from future political power struggles, and reinforce assessment of the impact of EU funded growth policies. · To improve flexibility a commitment device should be created that places the EU budget above continuous political disagreement. We suggest the creation of a European Growth Fund, on the basis of which the European Commission should be allowed to borrow on capital markets to anticipate pre-allocated EU expenditure, such as Structural and Cohesion Funds. Markets would thus be a factor in EU budget policymaking, with a potentially disciplining effect. Attaching conditionality to this type of disbursement appears legitimate, as capital delivered in this way is a form of assistance.

We run a standard income convergence analysis for the last decade and confirm an already established finding in the growth economics literature. EU countries are converging. Regions in Europe are also converging. But, within countries, regional disparities are on the rise. At the same time, there is probably no reason for EU Cohesion Policy to be concerned with what happens inside countries. Ultimately, our data shows that national governments redistribute well across regions, whether they are fiscally centralised or decentralised. It is difficult to establish if Structural and Cohesion Funds play any role in recent growth convergence patterns in Europe. Generally, macroeconomic simulations produce better results than empirical tests. It is thus possible that Structural Funds do not fully realise their potential either because they are not efficiently allocated or are badly managed or are used for the wrong investments, or a combination of all three. The approach to assess the effectiveness of EU funds should be consistent with the rationale behind the post-1988 EU Cohesion Policy. Standard income convergence analysis is certainly not sufficient and should be accompanied by an assessment of the changes in the efficiency of the capital stock in the recipient countries or regions as well as by a more qualitative assessment. EU funds for competitiveness and employment should be allocated by looking at each region's capital efficiency to maximise growth-generating effects or on a pure competitive.

Recent European Union conventions, treaties, & declarations (eg, the 2000 Treaty of Nice, the 2001 Declaration of Laeken, & plenary sessions) deal with issues ranging from the European Convention, the drafting of a European constitution, & the accession of the new European Union member states in May 2004. A chronology is provided, as well as a schema of European governance (the European Parliament, the Council of Europe, the Council of Ministers, European defense, foreign affairs, & the European Commission). A. Siegel