Spain and the Netherlands, through their finance ministers, call for reforming EU fiscal rules to “reinforce fiscal sustainability in a more effective and efficient manner” and enable the public investments needed for the green and digital transitions.
Most notably, a joint paper calls for country-specific fiscal plans and for the introduction of a simple expenditure rule – on Monday 4th of April 2022
The current EU fiscal rules have long been criticized as being “obsolete”, for example by the French and the Italian governments. The rules limit the countries’ debt levels to 60% of GDP and their annual deficits to 3% of GDP. Following these rules, some highly indebted countries would have to radically cut their debt in a way that would hurt their economies, especially now that the pandemic led some countries to even higher public debt levels.
“Currently, the EU fiscal rules follow no economic logic. Thierry Philipponnat, chief economist at the NGO Finance Watch, said, “They are also too rigid and thus cannot adapt to the changing economic circumstances.”
In the past years, for example, the interest rates for public debt were very low, making higher debt levels much more affordable than in the past.
The joint paper does not propose scrapping the 60% and 3% rules—not because they are particularly sensible, but because they are enshrined in the treaties, making any change very difficult.
Instead, the paper takes aim at what the pathway to these targets should look like. Here, the focus on taking into account the specific economic reality in each country is especially commendable, according to Philipponnat.
The two finance ministers now hope to spark a debate among their EU colleagues. We will see whether the overall positive response to the paper stems from genuine newfound common ground or a lack of specific details. The EU Commission will present a proposal with more details in the coming months.
In the coming weeks already, the EU Commission might provide further information on its fiscal guidance for member states to plan their budgets for 2023. The EU suspended fiscal rules in March 2020 to avoid burdening national budgets during the Coronavirus pandemic.
The general escape clause will remain in effect until the end of 2022.
The Commission had originally planned to reinstate the rules in 2023. However, the war in Ukraine is creating new uncertainties in the economy to which public budgets might have to react. In early March, the Commission said it would revisit the issue in April.
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