The ongoing reform of EU fiscal rules could give governments more leeway in plans that combine debt cuts with investment and reforms, in exchange for greater accountability, the EU’s Economic Commissioner Paolo Gentiloni said
Speaking to an insurance conference in Rome, Gentiloni said the
European Commission would present proposals on how to reform the rules,
called the Stability and Growth Pact, in October.
The rules are meant to safeguard the value of the euro by preventing
excessive government borrowing. They say public debt must be below 60%
of gross domestic product (GDP) and government deficits below 3% of GDP,
and these basics will not change.
But because the pandemic left many countries with debt well above
100% of GDP, with Greece at around 185% and Italy around 150%, debt
reduction rules need to change.
“Simplification, stronger national ownership and better enforcement
will be the defining features of an improved framework, with the overall
objective of supporting debt sustainability and sustainable growth,”
Gentiloni said.
“One way to do so could be to move towards medium-term macro-fiscal
plans that set net expenditure paths over several years and are
consistent with the convergence of debt to prudent levels,” he said.
With insecurity for the European economy increasing due to Russia’s
war of aggression in Ukraine, the EU executive calls on countries to
keep investing in economic growth and remains open about an eventual
prolongation of the suspension of fiscal rules.
Gentiloni said the medium-term plans could include pledges of
investment and reform that are in line with the EU’s and national goals,
like in the plans each government had to prepare to get money from the
EU post-pandemic recovery fund.
To make governments more attached to the goals set out in the plans
the EU would grant them greater leeway in proposing the debt reduction
path, as long as they aim for sustainability.
“Reform and investment commitments could allow for a longer fiscal
adjustment period,” Gentiloni said, but added that in exchange for the
bigger flexibility, governments would then be held accountable for the
results.
“A greater ex ante national ownership of the design of fiscal
trajectories could be balanced by a stronger ex post enforcement at EU
level,” he said.
The Commission proposal later in October will then be discussed by EU
finance ministers with a view to reaching an agreement on how to reform
the rules in the first half of 2023.
The European Commission on Tuesday (19 October) took another step
towards reforming the EU’s much-discussed fiscal rules, including the
bloc’s strict debt and deficit limits enshrined in the Stability and
Growth Pact.
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