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Policy Contribution

A proposal to revive the European Fiscal Framework

The current European fiscal framework is inefficient. It should be replaced with a system based on rules more suited to the two core objectives: public debt sustainability and fiscal stabilisation. The rules should be more transparent and easier to implement. These reforms would promote greater compliance.

By: , and Date: March 29, 2016 Topic: European Macroeconomics & Governance

Highlights

• Pro-cyclical fiscal tightening might be one reason for the anaemic economic recovery in Europe, raising questions about the effectiveness of the EU’s fiscal framework in achieving its two main objectives: public debt sustainability and fiscal stabilisation.

• In theory, the current EU fiscal rules, with cyclically adjusted targets, flexibility clauses and the option to enter an excessive deficit procedure, allow for large-scale fiscal stabilisation during a recession. However, implementation of the rules is hindered by the badly-measured structural balance indicator and incorrect forecasts,leading to erroneous policy recommendations. The large number of flexibility clauses makes the system opaque.

• The current inefficient European fiscal framework should be replaced with a system based on rules that are more conducive to the two objectives, more transparent, easier to implement and which have a higher potential to be complied with.

• The best option, re-designing the fiscal framework from scratch, is currently unrealistic. Therefore we propose to eliminate the structural balance rules and tointroduce a new public expenditure rule with debt-correction feedback, embodied in a multi-annual framework, which would also support the central bank’s inflation target. A European Fiscal Council could oversee the system.

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Working Paper

COVID-19 credit-support programmes in Europe’s five largest economies

This paper assesses COVID-19 credit-support programmes in five of the largest European economies, and examines how countries have dealt with trade-offs raised by the programmes.

By: Julia Anderson, Francesco Papadia and Nicolas Véron Topic: European Macroeconomics & Governance Date: February 24, 2021
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Opinion

La dette : une obsession prématurée

Ce qui est malsain, avec la proposition d’annuler la dette, c’est le déni de réalité consistant à affirmer que l’Etat peut effacer une partie de ses engagements sans que cela ne coûte à personne.

By: Jean Pisani-Ferry Topic: European Macroeconomics & Governance Date: February 22, 2021
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Past Event

Past Event

Disruption or transformation: the impact of a digital euro on the financial system

How would a digital Euro impact the financial system?

Speakers: Fabio Panetta and Guntram B. Wolff Topic: European Macroeconomics & Governance, Finance & Financial Regulation Date: February 10, 2021
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Blog Post

The post-coronavirus fiscal policy questions Europe must answer

Europe’s policymakers will have to take a series of decisions in the months ahead, in order to reinstate, and possibly reform, the bloc’s fiscal rulebook.

By: Thomas Wieser Topic: European Macroeconomics & Governance Date: February 3, 2021
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Past Event

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Monetary and fiscal policy interaction in times of Next Generation EU

Could Next Generation EU enable a better coordination of monetary and fiscal policy

Speakers: Lorenzo Bini Smaghi, Grégory Claeys and Hans Vijlbrief Topic: European Macroeconomics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: January 20, 2021
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Blog Post

When the future changes the past: fiscal indicator revisions

The 2020 pandemic economic shock has led to reassessment of fiscal policy measures in 2018 and earlier, because of faulty measurement of unobserved output gaps and structural balances. The current period of suspension of EU fiscal rules should be used to design a better fiscal framework.

By: Zsolt Darvas Topic: European Macroeconomics & Governance Date: January 5, 2021
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Podcast

Podcast

The geopolitics of money

The current debate on currencies is driven by politics rather than economics.

By: The Sound of Economics Topic: Global Economics & Governance Date: December 9, 2020
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Parliamentary Testimony

European Parliament

Euro area accession countries in the context of the pandemic

Testimony before the European Parliament on the subject of euro area accession.

By: Zsolt Darvas Topic: European Macroeconomics & Governance, European Parliament, Testimonies Date: November 19, 2020
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Parliamentary Testimony

European Parliament

New life for an old framework: redesigning the European Union's expenditure and golden fiscal rules

Testimony before the European Parliament on the subject of EU fiscal policies.

By: Zsolt Darvas Topic: European Macroeconomics & Governance, European Parliament, Testimonies Date: November 17, 2020
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Opinion

Politics, not economics, demands a strengthened international role for the euro

Not just the EU but also other countries, particularly China, need a defence against weaponisation of the dollar.

By: Alicia García-Herrero and Federico Steinberg Topic: European Macroeconomics & Governance Date: October 28, 2020
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External Publication

European Parliament

New life for an old framework: redesigning the European Union's expenditure and golden fiscal rules

This briefing paper focuses on two aspects of the EU fiscal framework: whether an expenditure rule would be more reliable than a structural budget balance rule and the possible benefits and drawbacks of introducing a golden rule to exclude certain types of investment from the operational fiscal rule.

By: Zsolt Darvas and Julia Anderson Topic: European Macroeconomics & Governance, European Parliament, Testimonies Date: October 14, 2020
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Blog Post

For the euro there is no shortcut to becoming a dominant currency

As an international currency, the euro has always been a distant second to the dollar. The idea of a greater international role for the euro has been floated, but without major institutional reform, the euro will not become a dominant currency.

By: Grégory Claeys and Guntram B. Wolff Topic: Global Economics & Governance Date: October 13, 2020
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