The three fiscal policies in the European Union are: the institutional arrangements, the excessive deficit procedure and the Stability and Growth Pact. Regarding institutional arrangements, these are put in place so that EU member states can establish sound fiscal policies and have been agreed by member states. These are the institutional provisions foreseen by articles 121-126 of the Treaty on the Functioning of the European Union: prohibition of monetary financing, prohibition of privileged access to financial institutions, no bailout clause, fiscal provisions to avoid excessive deficits and the Stability and growth. These institutional arrangements are put in place so that member states can achieve balanced budgets and strengthen procedures for excessive deficits (ECB, 2018). Say no to plagiarism. Get a tailor-made essay on "Why Violent Video Games Shouldn't Be Banned"? Get an original essay For EU budgetary policies, the Treaty on the Functioning of the European Union requires member states to avoid excessive public deficits. The basic reference for Member States is a government deficit of 3% and a gross debt of 60% of GDP, however there is an exemption if a Member State's deficit is temporary and remains close to the reference value . The ECOFIN Council is the one that decides if a member state has excessive deficits and takes action if a proposal arrives from the European Commission. The Council also sets the deadline for reducing excessive deficits which sometimes lead to the imposition of sanctions on the Member State concerned (ECB, 2018). The Stability and Growth Pact provides operational clarification of the EU fiscal rules. The Pact contains the procedures for multilateral budgetary surveillance (preventive arm) and the conditions for applying excessive deficit procedures (corrective arm). The Pact is considered a vital part of the macroeconomic framework of the European Monetary and Economic Union. It urges Member States to harmonize their fiscal policies and avoid excessive deficits as a means of achieving macroeconomic stability in the EU. The rationale behind the Pact is to achieve permanently sound fiscal policies and for Member States to adhere to medium-term objectives for their budgetary positions that are “close to balance or in surplus” according to country-specific considerations of the EU (ECB, 2018). However, according to Larry Elliot (2015) the reason why Greece and other EU countries are experiencing economic difficulties is the lack of fiscal policy within the union. The union also does not have a common mechanism for transferring resources from one member state to another; taxes charged by the best performing EU members cannot be turned into increased spending for poorly performing EU countries. True, there is a single currency and a single interest rate, but there is no fiscal union that should be established together with the monetary union. Apart from this, the EU's obsession with deficit reduction has hindered growth in the Eurozone. Even though some countries wanted to leave the Union (e.g. Italy), they realized that leaving would plunge their country into an even greater financial crisis as unemployment rates would rise further. will rise and its banking system will collapse. Membership of the Eurozone is compared to a curse, Italy is forced to abide by the absurd fiscal rules of the Eurozone and has not been allowed to reach further budget deficits as EU rules clearly state that to bring back their country's competitiveness faces deflationinternational which involves cost cuts and austerity measures (Elliot, 2018). French President Emmanuel Macron has presented his proposal to restore European citizens' trust in the European project after a decade of financial crisis. crises and immigration problems in order to suppress the rise of far-right and anti-EU parties in Europe. He proposed that the EU should have its own finance ministry headed by a eurozone finance minister (Chrisafis, 2017). Another alternative in his proposal is to allow the member state to have more freedom to manage tax policies suited to their needs (Elliot, 2018). The European Union needs a fiscal union to quell economic shocks emanating from one of its members from spreading throughout the Union. Another alternative put forward is for member states to share the financial risk to insure each other. An example of this is the proposal for an EMU-wide unemployment insurance system that will stabilize private incomes together with a central fiscal capacity that will collect annual contributions from EU member states linked to local shocks and also offer benefits without harmonization of unemployment insurance. system. This structure can smooth business cycles and ensure fiscal discipline and prevent moral hazards (Berger et.al., 2018). Eurosclerosis is a term coined by German economist Herbert Giersch that he used to describe the period of economic stagnation in Europe during the 1970s. and the 80s. In recent decades the European Community has undergone snail-paced employment growth and further European integration is at a standstill. Giersch identified that the rigid structures of the European Community caused this event, but it is not the only cause. He also blames industries that have become dependent on tariffs and public aid that should have been used to improve competitiveness, the rigidity of the labor market has prevented him from freeing up and encouraging businesses to use labor-saving technologies, welfare payments to people have disincentivised them. to work, and excessive regulations have created barriers to entry for new workers and businesses. The Eurosclerosis era ended with a stronger push towards European integration in the 1990s and 2000s and as the European Union improved its regulatory flexibility (Investopedia, 2018). However, Lithuania was not yet part of the European Community when it came into force. they experienced eurosclerosis in the 1970s and 1980s. The Baltic state is still part of the Soviet Union which is facing a similar problem of economic stagnation. The Soviet Union achieved rapid growth in the 1950s thanks to its planned economy which in the Soviet authorities coordinated economic activity through directives, social and economic objectives. and regulations. However, they also control the social and economic activity of the Union, as the Soviet Union does not have an open market that provides price signals and incentives to direct economic activity which led to economic inefficiencies and waste. Due to the Soviet Union's fixation on industrialization and urbanization; a formerly backward economy has modernized by adopting various Western technologies at the expense of personal consumption. The Soviet authorities were aware of the ineffectiveness of the planned economy as they ran out of Western economic models to imitate (Johnston, 2016). In the 1950s Nikita Khrushchev attempted to decentralize economic control to allow a second economy to manage the complex affairs of the Union, however, he would return to the centralized economy as he had torn the foundations apartof the planned economy. In the 1970s, reforms were resumed to allow the Soviet economy to have a liberal market system, but with the foundations of centralized economics, but the Soviet economy stagnated further. The radical economic reform of Perestroika carried out by Mikhail Gorbachev created an atmosphere of openness and encouraged individual private incentives. This sense of openness encouraged Soviet citizens, and they took advantage of this freedom to gain information about their struggling economy. Soviet authorities further relaxed control to help their struggling economy, which further led to its dissolution as the union experienced an economic contraction in the late 1980s and 1990s (Johnston,2016). The Stability and Growth Pact is legislation aimed at preventing the fiscal policies of EU member states from taking a problematic direction and at correcting excessive budget deficits or excessive public debts (ECB, 2018). The SGP is a binding agreement between EU member states. States must coordinate their economic policies and activities in a cohesive way to ensure the stability of the Economic and Monetary Union. The Pact places two limits on EU member states: a member state's public deficit cannot exceed the 3% reference point and the national debt cannot exceed 60% of the country's GDP; sanctions are foreseen in case of non-compliance. The pact is often criticized for not including sanctions for the EU's largest economies such as Germany and France, even if they did not comply with the limits, while smaller countries such as Greece and Portugal are burdened with heavy sanctions (Investopedia, 2018). faithfully reducing its government deficit over the period 2008-2014 in order to reach the Maastricht criterion of a 3% government deficit. Lithuania presented its Stability Program in 2017 which is in line with the European Union's Stability and Growth Pact and aims to achieve an annual general budget surplus of 0.3% of the Baltic States' GDP and hopes in balanced economic growth averaging 2.5% between 2018 and 2020 through internal and external demand. To achieve this goal, Lithuania is planning to improve its tax administration, promote the activities of state-owned enterprises so as to increase the return on state capital, and increase the focus on result-oriented public finance (Anskaitienė, 2017). report, Lithuania's economy is quite resistant to external changes as it achieved a rapid recovery during the 2008 global financial crisis due to the high flexibility of the Lithuanian economy. Although Lithuania has strengthened its financial and fiscal framework to accommodate the European Union's fiscal pact and supervision; inequality indicators remain high and the share of Lithuania's informal activities is significant. Lithuania is also affected by the Russian counter-sanction which has caused a contraction of Lithuanian exports by 40%, but this will not hinder the growth of the Baltic state. The reason for Lithuania's volatility is that it is a small economy dependent on exports which account for 81% of its GDP (OECD, 2016). GDP growth of Lithuania over the period 1991-2015. Lithuania reached a GDP of -1.13% during the Russian ruble crisis, while in 2009 it reached a GDP of -11.8% due to the global financial crisis. The informal economy in Lithuania creates a level playing field for businesses and promotes economic inequality. Although slightly affected by the global financial crisis, Lithuania has picked up a few scratches that still need healing. The Baltic state also experienced a boom.