The European Union’s fiscal rules have been suspended until at least the end of 2021. When they are reinstated, they will need to be modified, if only because of the high levels of debt.
Proposals have been made—and
more are to come—suggesting various changes and simplifications.
Blanchard, Leandro, and Zettelmeyer take a step back and discuss how one
should think about debt sustainability in the current and likely future
EU economic environment.
They argue that, given the complexity of the
answer, it is an illusion to think that EU fiscal rules can be simple.
But it is also an illusion to think that they can ever be complex enough
to accommodate most relevant contingencies. Instead, the authors
propose abandoning fiscal rules in favor of fiscal standards, i.e.,
qualitative prescriptions that leave room for judgment together with a
process to decide whether the standards are met. Central to this process
would be country-specific assessments using stochastic debt
sustainability analysis, led by national independent fiscal councils
and/or the European Commission. Disputes between member states and the
European Commission on application of the standards should preferably be
adjudicated by an independent institution, such as the European Court
of Justice (or a specialized chamber), rather than by the Council of the
European Union.
Full article
PIIE
© Peter G Peterson Institute for International Economics
Key
Hover over the blue highlighted
text to view the acronym meaning
Hover
over these icons for more information
Comments:
No Comments for this Article