European Fiscal Governance: A Proposal from the IMF

High debt and rising interest rates put a premium on improved governance to anchor fiscal policy in EU member states.

 
Given the central role of fiscal policy in addressing both recent crises and future challenges, the call to reform fiscal governance in Europe resonates like never before.

Fiscal policy provides essential support when households and firms are hit by large shocks, such as the pandemic, or when monetary policy is constrained. However, that requires healthy public finances. High debt and rising interest rates are making it harder for governments to address today’s multiple priorities, including tackling extreme increases in the cost of living and addressing the climate emergency.

Against this backdrop, the European Union needs revamped fiscal rules that have the flexibility for bold and swift policies when needed, but without endangering the sustainability of public finances. It is critical to avoid debt crises that could have large destabilizing effects and put the EU itself at risk. This will require building greater fiscal buffers in normal times.

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Πηγή: blogs.imf.org