EU debt rules: Member states edge closer to agreement on reform

According to draft conclusions for an EU leaders’ meeting at the end of March, seen by EURACTIV, member states seem to agree on more country-specific fiscal paths instead of relying on one-size-fits-all numerical targets.

While the reference values from the EU treaties remain unchanged – at a maximum public deficit of 3% of GDP and a debt level of 60% of GDP – they will be less important in practice, as will other targets that the EU Commission currently uses to evaluate member states’ fiscal policies, according to the draft conclusions.

This is in line with the proposed course of action to reform the EU’s economic governance framework that the European Commission laid out in a communication in November.

Reforms and investments

Under the new governance framework, member states will have to present “national medium-term fiscal-structural plans” which, according to the draft conclusions seen by EURACTIV, “should cover fiscal policy, reforms, and investments”.

The current fiscal rules have been heavily criticised for deterring public investments. As such, making it easier for member states to invest was one of the key motivations behind the reform of the fiscal rules.

“The plans should set a national fiscal path defined in terms of net primary expenditures as a single operational indicator,” the draft conclusions read, which is also in line with what the European Commission proposed.

Net primary expenditure measures all the money a government spends minus the government revenues, excluding government expenditure for interest payments and cyclical unemployment. Excluding expenditure for interest payments is important for countries that have to pay a higher risk premium when they issue government bonds.

In general, the national fiscal paths are meant to allow the Commission to better take into consideration the national circumstances and economic needs when evaluating their fiscal policy. However, fiscally more conservative countries like Germany or the Nordic countries fear that individual plans would make it hard to enforce debt sustainability.

European control

That’s why the national fiscal paths should be “coherent with the technical fiscal trajectory from the Commission”, the draft conclusions state.

“The Commission trajectory should be based on a common methodology to be agreed that is replicable, predictable and transparent, and should include an analysis of public debt challenges,” the document reads.

It continues: “The plans and possible updates should be assessed by the Commission in a fully transparent manner, based on common assessment principles to be agreed, and be subject to multilateral scrutiny and endorsement by the Council.”

The insistence on replicability makes the Commission’s task of coming up with an acceptable methodology especially hard since it also needs to be able to take into account a variety of country-specific investments and reforms.

Democratic control

The national fiscal plans under the reformed economic governance framework would span over several years, raising questions about democratic control. Would a new government be bound by the budgetary decisions of an old, ousted government that first set up the national fiscal plan?

The draft conclusions also address this issue, saying that “all plans could be aligned, upon request, with the national electoral cycle, revised with the accession of new governments, and updated in objective circumstances while upholding the ambition of the fiscal adjustment.”

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[Edited by Nathalie Weatherald]

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