Brussels will propose tomorrow to reform the common fiscal rules
The European Commission will present this Wednesday, November 9, its proposal for reform of the common fiscal rules, which will be based on simplification, greater involvement of Member States and better implementation in the governance framework. These intentions were already advanced by the president of the Community Executive, Ursula von der Leyenlast September in his speech at the annual Bruegel Meetings, where he warned of the challenge of reconciling the “two mountains” that the EU must face: one of debt and the other of investment.
In a post-pandemic context with a public debt-to-GDP ratio that stands at 94.2% in the eurozoneBrussels accuses that the EU’s economic governance framework has become “too complex and difficult to navigate”, since “it is based on unobservable and retrospective indicators”. The current fiscal discipline obliges Member States to respect the limits of 3% of GDP for the public deficit and 60% in debtobjectives for which countries like Spain ask for more flexibility and for the Commission to adapt the trajectories to the circumstances of each country.
Since the debate on the revision of the Stability and Growth Pact In October last year, the Commission held discussions with the governments and tax authorities of the Member States. In them, it was revealed, as Von der Leyen herself pointed out, that national involvement has been too low and the application has not been sufficiently effective.
A year after starting this survey, the conclusions arrive, in the form of guidelines on possible reforms. Thus, the simplificationa greater national involvement and one best app they will be the defining features of an improved framework, with the overall objective of supporting debt sustainability and sustainable growth. Brussels has put on the table the possibility of moving towards medium-term macro-fiscal plans that establish net spending paths over several years and are consistent with the convergence of debt towards prudent levels.
Nor is it ruled out that these plans include investment commitments and reform reflecting EU and national priorities, as well as high-level guidance for Member States. In addition, the Community Executive has already indicated the design, governance and operation of the Recovery and Resilience Mechanism as a useful model in this regard.
Greater room for maneuver
To ensure greater national ownership, one of the possibilities von der Leyen raised is to give Member States a greater room for maneuver when proposing fiscal trajectories, provided that common EU principles, including debt sustainability, are respected. Among the possibilities is that the reform and investment commitments allow a longer fiscal adjustment periodas a way to ensure that fiscal sustainability and growth can be mutually reinforcing.
In this way, greater ‘ex ante’ national appropriation of the design of fiscal trajectories is will balance with greater application ‘ex post‘ at EU level. This is, in essence, the potential agreement that the president of the Commission outlined. All of these are elements of notable importance for national involvement, with which Brussels hopes to obtain a broad support among member states with the aim of urging them to move towards a common understanding that also sends a reassuring message to the markets.
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