What to do about the European Union’s fiscal rules

For more than three decades, fiscal policies of members of the European Union (EU) have been constrained by increasingly complex rules built around common debt and deficit targets, known as the Stability and Growth Pact. Faced with the historic shock resulting from the COVID-19 pandemic, the EU suspended the rules until at least end-2021. There is broad agreement that the rules will need to be reformed before they are reinstated—because of the high levels of debt incurred during the pandemic, but also to address longstanding flaws.

In a PIIE Working Paper, we argue for a different approach. While the design of EU rules can be improved, the main problem is the very concept of country- and time-invariant EU fiscal rules. No rule can come close to fitting the diversity of possible situations, including because many are impossible to predict. The paper thus proposes discarding fiscal rules in favor of fiscal standards—qualitative prescriptions that leave room for judgment—together with a process to enforce the standards.

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Πηγή: piie.com