Documents Barnes, Sebastian 2 results

"Europe is putting in place a new system of fiscal rules following the euro area sovereign debt crisis and decades of rising government to debt-to-GDP ratios. These include the so-called "six pack" to upgrade the Stability and Growth Pact to a new Treaty incorporating the "fiscal compact". Much of the discussion about the new rules has been procedural or theoretical. This paper shows what the rules will mean in practice under a realistic mediumterm scenario developed by the OECD. In the short term, fiscal consolidation will largely be driven by the current wave of Excessive Deficit Procedures. Only once these commitments are fulfilled will the new system of rules come into action. Although the rules are complex, the central pillar of the new fiscal rules will be the requirement to balance budgets in structural terms. These imply a tight fiscal stance over the coming years for many European countries by comparison with the performance achieved in past decades: almost all countries will have to be as disciplined as the few countries that managed to make meaningful progress in tackling high debt levels in the past. A further tightening of budgetary Medium-Term Objectives is likely in 2012, which will in many cases make the required fiscal stance even tighter. Over the very long term, the rules imply very low levels of debt. The requirements can thus not be considered to be a permanent approach. The methodology to calculate the structural balance has a number of weaknesses and discretion will be needed in implementing the rules."

"The policy responses to the COVID-19 pandemic have highlighted two related issues in the EU fiscal surveillance framework in the current low interest rate regime: the increasing distance of some member states from the threshold for government debt of 60% of GDP as well as the lack of clarity about the future of the EU fiscal framework once the suspension of the general escape clause comes to an end. The current framework might not sufficiently take into account the need for government investment to drive the green and digital transition. All these elements point to a new debate about EU fiscal rules. This Forum enhances the discussion on the realisation of a credible fiscal framework that takes into account the current macroeconomic context. The following contributions, based on a recent conference jointly organised by Intereconomics and the Centre for European Policy Studies, provide a critical assessment of the current state of the debate on European fiscal rules, examine the recent European Fiscal Board's reform proposal for the EU fiscal framework, draw on the experience of the national independent fiscal institutions and consider the idea of a social golden rule for public investments."