EU’s Fiscal Rules: Keep It Simple, Not Stupid!

Abstract

In this paper, we describe key problems of the current EU’s fiscal framework and offer constructive alternatives to reforming it. A comprehensive reassessment of the rules is necessary, as the development of the rules has reached an impasse for both political and technical reasons.

In our view, Europe needs fiscal rules to ensure sustainability of public finances. In order to reconcile the freedom and responsibility of member states’ fiscal policies, a balance must be struck in which the rules are simple enough to actually be useful in fiscal policy guidance. This requires that compliance with them can be easily monitored and that the rules are effective enough to allow solidarity to be achieved rarely enough.

Our conclusion is that the new rules should emphasize the long-term debt sustainability target more clearly, while at the same time making its monitoring more effective through better short-term indicators, in particular the expenditure benchmark. We provide a proposal for practical implementation option, which is largely consistent with the current rules. At the same time, the expenditure benchmark should be reformed in order to further its countercyclical impact on fiscal policy, and it should replace the structural balance as the operational indicator of fiscal policy stance.

Responsibility for economic policy decisions and their consequences should be fully restored to the Member States and the role of national supervisors should be strengthened. Solidarity in times of crisis should be accompanied by strict conditionality that, in good times, the fiscal policy must be in line with the reformed EU framework.

Information om publikationen

Forskningsgrupp
Macroeconomy and public finances
Serie
ETLA Raportit - Reports 118
Datum
12.10.2021
Nyckelord
Fiscal policy, EU, Fiscal rules, Public debt, Fiscal stance
ISSN
2323-2447, 2323-2455 (Pdf)
JEL
E61, E62, H60, H63
Sidor
21
Språk
Finska