Post-Covid fiscal rules for EU countries Analysis of current proposals and their critiques by Balázs Romhányi published by Senado Fedral, IFI (5/2023).
“Any good fiscal rule system must find the balance between flexibility and enforceability. It must be flexible enough to avoid any form of procyclical fiscal policy, yet it must be enforceable to maintain credibility and long-term debt sustainability. Systems of fiscal rules that are good from an economic point of view cannot be simple, no matter how much simplicity would be desirable from a political point of view.
Policymakers and experts generally agree that the European Union’s (EU) economic governance structure is not simple. Instead, it is overly complicated yet rigid and prone to drive domestic fiscal policies into pro-cyclicality. Furthermore, the rules have not contributed to the debt sustainability of EU Member States with particularly high domestic debt ratios, evidenced primarily during the Covid-19 crisis.
The European Commission presented a proposal (in the form of a communication in November 2022 and then in a codified version in April 2023) to reform the economic governance structure. Key elements of the reform under discussion include (i) improved debt sustainability, (ii) stronger fiscal surveillance by the Commission in the frame of the European Semester, (iii) development of medium-term national fiscal plans (while evoking analogies with national recovery and resilience plans under the Recovery and Resilient Facility) with corresponding annual progress reports, and (iv) increased national ownership through empowered national Independent Fiscal Institutions (IFIs)…”
