Member of the Board
Secretary General of the Treasury and International Financing, Spain
Director General, Swedish National Debt Office
Director of Fiscal Affairs Department, IMF,
Member of the Fiscal Council, Slovenia
Director General, European Commission, DG ECFIN,
- The comprehensive reform proposal by the Commission focuses on a risk-based approach centred around debt sustainability analysis and increased national ownership.
- The 1/20th-rule of the SGP is replaced by net expenditure paths that ensure convergence to sustainable debt levels over a four to seven-year horizon, depending on the size of countries’ public debt to GDP ratios.
- The IMF proposal features a more stringent risk-based approach but critically includes an EU wide fiscal capacity.
Because a common fiscal framework must address multiple objectives and could be a divisive issue across EU countries, its renewal is both an intellectual and a political challenge, says Bruegel director Jeromin Zettelmeyer. The proposals by the IMF and Commission address four key objectives: (1) the primacy of fiscal sustainability, (2) the trade-off between debt sustainability and necessary investments and fiscal measures, (3) the enforcement and national ownership and (4) the necessity of multilateral implementation.
Maarten Verwey, Director General of the DG ECFIN at the European Commission, explained that the Commission’s proposal centres around risk-based EU-level fiscal rules and strengthened national institutions. While the 3% deficit and 60% debt reference values remain, the 1/20th-rule of the SGP is replaced by net expenditure paths that ensure convergence to sustainable debt levels over the medium-term. The necessary speed of adjustment would depend on the size of countries’ public debt to GDP ratios. Additionally, sanctions should be smarter and work through reputational.
Plans with a four-year horizon proposed by member states should ensure that the right balance is found between achieving sustainability and catering for secondary objectives.
Vitor Gaspar, Director of the IMF’s Fiscal Affairs Department, situated the discussion in the macroeconomic context and compared the two proposals. He stressed that the effectiveness of fiscal activity in exceptional macroeconomic circumstances hinges on fiscal prudence in normal times. Like the Commission, the IMF proposes simplifying the framework and following a risk-based approach focused on debt sustainability analysis and increased national ownership. As opposed to the Commission, however, the IMF envisions an EU wide fiscal capacity.
The three discussants commended the Commission’s proposal as a step in the right direction while also pointing out distinct issues. Carlos Cuerpo, Spain’s Secretary General of the Treasury and International Financing, argued that the usual view of the policy mix should be enlarged to include energy policy. Karolina Ekholm, Director General of the Swedish National Debt Office, questioned the proposals’ insufficient focus on debt levels and the length of adjustment periods, stressing that appropriate debt levels are key for stability. Alenka Jerkič, Member of the Fiscal Council of Slovenia, raised issues like excessive discretion by the Commission, the equal treatment of countries, and linking conditionality with non-related political issues.
Notes by Lennard Welslau