Reforming Europe’s fiscal framework
This event will discuss reforming Europe's fiscal framework in order to make it less complex and more effective.
VIDEO & AUDIO RECORDINGS
Researchers from the French Council of Economic Analysis and from the German Council of Economic Experts independently came up with a proposal for reforming EU’s fiscal framework in the past months. The meeting was thus a good opportunity to compare the two proposals.
Both the French and the German councils agreed to considerer EU’s current fiscal rules as inefficient, for six different reasons: they are too complex, contain too many exemptions and escapes clauses that allow countries to bend the rules, are procyclical, are based on aggregates with large measurement errors and are not enforced nor complied with. The panel explained that their respective proposals are seeking to establish an expenditure rule to replace the current fiscal rules. This operational target offers the advantage of being simple, consistent with the EU Treaty and do not put into question the long-term debt anchor at 60% GDP. Although it exists some differences between the aims and the means of the proposals, the panel concluded that reforming EU’s fiscal framework is a priority to unsure both the sustainability of public debts and to allow a proper use of fiscal space when needed.
Beatrice Pierluigi from the ECB compared their points of view on objectives and technical means of such a reform, along with raising some difficulties that could arise in the implementation phase. While the French proposal gives provides room for ad hoc, or discretionary measures when assessing the economic situation of a country, the German one advocates for automaticity. The two proposal also differ in terms of governance: while the CEA would like to renationalise fiscal debates though the ‘comply or explain’ principle, the GCEE is based on a new EU regulation that would introduce automatic sanctions, enforced by a reformed European Fiscal Board.
Finally, the debate gave the opportunity to the European Commission to speak up. Lucio Pench, Director for Fiscal Policies at DG ECFIN, recalled the assistance that it exists a trilemma for EU fiscal rules: they must be at the same time simple, adaptable and enforceable. In his view, both the French and the German proposal echoed initiatives from the Commission, including the recent proposal for the incorporation of the Fiscal Compact into EU law. However, the Commission underlined several difficulties: an expenditure rules as thus defined could lead to too much automaticity in bad times, or too much discretion at other times. At the end of the day, the proposed rules could not be as simple as they seem, in the Commission’s view.
Event notes by Antoine Mathieu Collin
Registration and welcome coffee
Chair: Zsolt Darvas, Senior Fellow
Member, German Council of Economic Experts
Head of Conseil d'analyse économique
Director, Fiscal Policies, European Commission, DG ECFIN
Head, Fiscal Analysis Section, European Central Bank
Location & Contact