Today the EU Commission is presenting its findings and first steps for the revision of the European fiscal rules. The Commission assesses how well the rules have worked in the past and puts suggestions for improvement for discussion. The Commission sees problems with the complexity of the rules, the general effectiveness and enforceability, the pro-cyclical effect (strengthening rather than mitigating economic cycles), the lack of transparency of some poorly measurable indicators and a general tendency for fiscal rules to under-invest. The asymmetrical treatment of macroeconomic imbalances between current account surpluses and deficits is also discussed. Unfortunately, the analysis as a whole remains superficial and descriptive. The Commission provides few concrete figures or cases. At the end of the paper, the Commission presents the challenges listed for discussion and proposes, among other things, an exemption for green and digital investments from the debt and deficit rules. In the first half of this year, the Commission intends to consult relevant stakeholders on the proposals and, if necessary, to present legislative proposals for revising the fiscal rules towards the end of the year.
MEP Sven Giegold, financial and economic policy spokesperson of the Greens/EFA group commented:
“With its proposals for the fiscal rules, the Commission addresses the relevant problems of underinvestment and complexity. The Commission’s proposal to exclude digital and green investments from the fiscal rules does not solve the fundamental problem of underinvestment. European fiscal rules are too complicated and not particularly effective. The rules have contributed to widespread underinvestment in public goods such as infrastructure and education.
Particularly problematic is the fact that today’s fiscal rules have a pro-cyclical effect and reinforce rather than mitigate economic cycles. Pro-cyclical fiscal rules force states to cut spending during downturns, leading to avoidable poverty and unemployment. The complexity of the rules leaves the EU Commission too much room for manoeuvre in decision-making, so that they have become a political instrument in Italy, France and Germany, for example. The proposal on exceptions for green and digital would lead to even more complex and non-transparent fiscal rules, where simplification is urgently needed. Only simplification can counteract the politicisation of fiscal rules.
The Commission’s investigation can only be unsatisfactory if it does not put concrete figures on the table and does not discuss individual cases such as the bending of the rules in the case of France and Italy. The instrument for reducing macro-economic imbalances is not working properly, because there have never been any sanctions in this framework. The Commission should address this weakness, most importantly because Germany’s gigantic current account surplus is weakening the stability of the eurozone.
Instead of green exceptions, we need all investments to be better treated by budgetary rules, made possible by a simple depreciation rule. Spending for investment should be spread over many years when it comes to the calculation as the deficit akin to private companies. This will not only promote digitisation and climate change, but also other public goods such as research, health and education. For the rules to be truly countercyclical, they must allow governments to spend less in good times and more in bad times.
The German government must adopt a constructive attitude in the discussion on European fiscal rules. The pro-cyclical rules had a devastating effect in the crisis in many Member States and need to be reformed urgently. There is no need for dogmatic positions that deepen the divergencies between Northern and Southern Europe, but a genuine willingness to engage in dialogue. Only in this way can Europe achieve better budgetary rules”.