Past Event

A fiscal framework for the EU

Doubts about the fiscal sustainability of various member states have led Europe to enact greater coordination and surveillance. But are these policies effective? And what fiscal framework can best support Europe back to growth?

Date: March 3, 2016, 12:30 pm Topic: European Macroeconomics & Governance

SUmmary

See below for video recording and event materials.

Zsolt Darvas presented a new paper on the EU’s fiscal framework. Darvas and his co-authors, Grégory Claeys and Álvaro Leandro, argue that the current framework is inefficient, and does not fulfil the two objectives which should be at the heart of any fiscal framework: debt sustainability and fiscal stabilisation. They therefore propose an alternative framework, which would require a change to the Stability and Growth Pact but no treaty changes.

This alternative framework would scrap all rules related to the structural balance (the budget balance cleaned of the impact of the economic cyclie and one-off expenditures and revenue measures). The structural balance is very hard to estimate and therefore conducive to policy mistakes. The authors would replace structural balance rules with an expenditure rule including a debt correction mechanism. Such an expenditure rule is more transparent, easier to understand, and involves a tool (expenditure) which is directly under the control of governments, unlike the structural balance. They also propose establishing a European Fiscal Council, which would be independent from other European institutions. Its role would be to oversee the system and exercise discretion as to whether and when to suspend application of certain aspects of the rule for countries in exceptional circumstances.

The discussants mostly agreed with Zsolt Darvas’ characterisation of the current framework: it is complex, lacks transparency, and involves arbitrary use of flexibility which can lead to unpredictable outcomes. They also agreed that the reduction of debt to a prudent level, which leaves leeway for fiscal stabilisation in bad times, should be the ultimate goal, and that an expenditure rule with a debt correction mechanism is a good way to achieve this. However, there were doubts about the political viability of a change to the Stability and Growth Pact: most of the rules, as required by the Fiscal Compact, have been transposed into national law, which would considerably hinder their modification.

Svend E. Hougaard Jensen argued that not all countries are prone to deficit bias. For example, Nordic countries had built up fiscal surpluses before the crisis. He proposed a fiscal system based on debt targets, leaving each country to find its own way to achieve them. Kathrin Muehlbronner was sceptical about the establishment of a new European Fiscal Council, while she is very supportive of national fiscal councils. Lucio Pench argued that while an expenditure rule is the right operational target and public debt should be the long-term anchor, an intermediate objective is also needed, for example the primary balance. Focco Vijselaar argued for the benefits of multi-year fiscal targeting, and he also noted that while the 3% of GDP Maastricht deficit criterion is somewhat arbitrary, it still has an important function in avoiding gross fiscal errors, since it is a simple rule easily understood by politicians. A question was also raised during the Q&A session about the ability of this new expenditure rule to ensure an adequate aggregate fiscal stance in the euro area. Another point was that national ownership of the existing supranational rules is very weak. Some panellists were unconvinced by the authors’ central argument that simply introducing a fiscal rule which is generally recognised to be better will lead to more ownership.

VIDEO RECORDING

EVENT Materials

Zsolt Darvas – presentation

Schedule

Mar 3, 2016

12:30 - 13:00

Check-in and lunch

13:00 - 13:25

Presentation of Paper

Chair: Guntram B. Wolff, Director

Zsolt Darvas, Senior Fellow

13:25 - 14.30

Panel Discussion and Audience Q+A

Svend E. Hougaard Jensen, Professor, Copenhagen Business School

Kathrin Muehlbronner, Senior Vice President, Sovereign Risk Group, Moody's

Lucio Pench, Director, Fiscal Policies, European Commission, DG ECFIN

Focco Vijselaar, Director of the International Affairs Directorate, Netherlands Ministry of Finance

Speakers

Zsolt Darvas

Zsolt Darvas

Senior Fellow

Jenssen IMG

Svend E. Hougaard Jensen

Professor, Copenhagen Business School

Muehlbronner IMG

Kathrin Muehlbronner

Senior Vice President, Sovereign Risk Group, Moody's

Pench IMG

Lucio Pench

Director, Fiscal Policies, European Commission, DG ECFIN

Vijselaar IMG

Focco Vijselaar

Director of the International Affairs Directorate, Netherlands Ministry of Finance

Guntram B. Wolff

Guntram B. Wolff

Director

Location & Contact

Bruegel, Rue de la Charité 33, 1210 Brussels

Matilda Sevón

Matilda Sevón

matilda.sevon@bruegel.org +32 2 227 4212

Read about event More on this topic

Upcoming Event

Jun
1-2
08:30

Fiscal frameworks in Europe: background and perspectives

On 1-2 June Bruegel together with Danmarks Nationalbank and the Copenhagen Business School will organise a conference about fiscal frameworks in Europe. The conference will re-evaluate fiscal frameworks in Europe in light of experience gathered since the formation of the Economic and Monetary Union (EMU). The implications for the design of fiscal policy stemming from […]

Topic: European Macroeconomics & Governance Location: Danmarks Nationalbank
Read article More on this topic More by this author

Podcast

Podcast

What's next for France and Europe?

We host a conversation between Jean Pisani-Ferry and Guntram Wolff to discuss what the French election result will mean for France and Europe.

By: The Sound of Economics Topic: European Macroeconomics & Governance Date: May 11, 2017
Read about event More on this topic

Past Event

Past Event

Financial Times - Bruegel Forum: the future of Europe after the French election

The second event in the Financial Times - Bruegel Forum series will look at how the results of the French elections will affect Europe.

Speakers: Tony Barber, Jean Pisani-Ferry and Guntram B. Wolff Topic: European Macroeconomics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: May 11, 2017
Read article More on this topic More by this author

Opinion

Guntram B. Wolff

Brexit will change millions of lives. Our leaders must do more than posture

From the land border with Ireland to expats’ pension rights, there is much to negotiate.

By: Guntram B. Wolff Topic: European Macroeconomics & Governance Date: May 8, 2017
Read about event More on this topic

Past Event

Past Event

Global outlook and policy priorities

At this event the Managing Director of the International Monetary Fund, Christine Lagarde, will speak about the global outlook and policy priorities, ahead of the 2017 IMF Spring Meetings

Speakers: Christine Lagarde, Jean-Claude Trichet and Guntram B. Wolff Topic: Global Economics & Governance Location: Brussels Date: April 12, 2017
Read article More on this topic More by this author

Blog Post

Lagarde picture

Building a more resilient and inclusive global economy

Curtain raiser speech ahead of the 2017 IMF Spring Meetings delivered at Bruegel by the Managing Director of the International Monetary Fund.

By: Christine Lagarde Topic: Global Economics & Governance Date: April 12, 2017
Read article More on this topic

Blog Post

Zsolt Darvas
DSC_0798
dsc_1000

The UK’s Brexit bill: what are the possible liabilities?

The EU-UK financial settlement will be a complex part of the Brexit negotiations. Here the authors estimate that at end-2018 the EU will have outstanding commitments and liabilities totalling €724bn. Most of these relate to spending after the UK’s likely departure date, but are tied to commitments made during the UK’s EU membership.

By: Zsolt Darvas, Konstantinos Efstathiou and Inês Goncalves Raposo Topic: European Macroeconomics & Governance Date: March 30, 2017
Read article More on this topic

Blog Post

Zsolt Darvas
DSC_0798
dsc_1000

Brexit bill negotiators must answer these 12 questions

Is Brexit a divorce, or is the UK leaving a club? This is the first question to answer as negotatiors discuss the key aspects of the EU-UK financial settlement. The authors present various scenarios, and find that the UK could be expected to pay between €25.4 billion and €65.1 billion. But the final cost can only be calculated after extensive political negotiations.

By: Zsolt Darvas, Konstantinos Efstathiou and Inês Goncalves Raposo Topic: European Macroeconomics & Governance Date: March 30, 2017
Read article Download PDF More on this topic

Working Paper

WP_2017_03 cover

Divorce settlement or leaving the club? A breakdown of the Brexit bill

To bring transparency to the debate on the Brexit bill and to foster a quick agreement, the authors of this Working Paper make a comprehensive attempt to quantify the various assets and liabilities that might factor in the financial settlement.

By: Zsolt Darvas, Konstantinos Efstathiou and Inês Goncalves Raposo Topic: European Macroeconomics & Governance Date: March 30, 2017
Read article More on this topic

Blog Post

Uuriintuya Batsaikhan
Zsolt Darvas

European spring - Trust in the EU and democracy is recovering

Trust in the EU and satisfaction with democracy are returning in southern European countries, where citizens’ confidence in European institutions was dented during the crisis years.

By: Uuriintuya Batsaikhan and Zsolt Darvas Topic: European Macroeconomics & Governance Date: March 24, 2017
Read about event More on this topic

Past Event

Past Event

Artificial intelligence: challenges and opportunities

Rob Atkinson, the founder and president of the Information Technology and Innovation Foundation presented his research work on the impact of artificial intelligence on our lives.

Speakers: Robert Atkinson, Anna Byhovskaya, Merja Kyllönen and Georgios Petropoulos Topic: Innovation & Competition Policy Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: March 23, 2017
Read article More on this topic More by this author

Podcast

Podcast

Special edition - The Treaty of Rome at 60

The 60th anniversary of the Treaty of Rome presents an opportunity to reflect on the progress of European integration so far, and to discuss what the future will bring for Europe. We explore these topics in this special edition of The Sound of Economics.

By: The Sound of Economics Topic: European Macroeconomics & Governance Date: March 22, 2017
Load more posts