Evaluating the European Commission’s fiscal governance proposal

At the start of the Covid-19 crisis, the European Commission
suspended the fiscal rules that applied to member states to allow
countries to use fiscal policy domestically to deal with health
emergency. This suspension was further extended when Russia
invaded Ukraine and cause a great energy crisis in the European
Union.

The suspension is now meant to be lifted in 2024 when the rules
will come back into full operation. In this three-year period,
the European Commission has also tried to update and modernise
the fiscal framework in a proposal they put forward in April
2023.

In this episode of The Sound of Economics, Maria Demertzis
invites Jeromin Zettelmeyer and Zsolt Darvas to evaluate this
proposal. As they present in a recent paper, in this framework,
medium-term fiscal adjustment requirements would be determined by
country-by-country debt sustainability analysis (DSA), the 3
percent deficit ceiling and simple rules requiring minimum
deficit and debt adjustments (‘safeguards’). These elements are
controversial, with some EU countries (and us) preferring a
DSA-based approach, while others prefer to stick to simple
rules. 

 Relevant publications


Darvas, Z., L. Welslau and J. Zettelmeyer (2023) ‘A
quantitative evaluation of the European Commission´s fiscal
governance proposal’, Working Paper 16/2023, Bruegel

The economic governance review and its impact on
monetary-fiscal coordination, Zsolt Darvas, Jeromin Zettelmeyer,
In-Depth analysis, European Parliament