Past Event

A fiscal framework for the EU

Doubts about the fiscal sustainability of various member states have led Europe to enact greater coordination and surveillance. But are these policies effective? And what fiscal framework can best support Europe back to growth?

Date: March 3, 2016, 12:30 pm Topic: Macroeconomic policy

SUmmary

See below for video recording and event materials.

Zsolt Darvas presented a new paper on the EU’s fiscal framework. Darvas and his co-authors, Grégory Claeys and Álvaro Leandro, argue that the current framework is inefficient, and does not fulfil the two objectives which should be at the heart of any fiscal framework: debt sustainability and fiscal stabilisation. They therefore propose an alternative framework, which would require a change to the Stability and Growth Pact but no treaty changes.

This alternative framework would scrap all rules related to the structural balance (the budget balance cleaned of the impact of the economic cyclie and one-off expenditures and revenue measures). The structural balance is very hard to estimate and therefore conducive to policy mistakes. The authors would replace structural balance rules with an expenditure rule including a debt correction mechanism. Such an expenditure rule is more transparent, easier to understand, and involves a tool (expenditure) which is directly under the control of governments, unlike the structural balance. They also propose establishing a European Fiscal Council, which would be independent from other European institutions. Its role would be to oversee the system and exercise discretion as to whether and when to suspend application of certain aspects of the rule for countries in exceptional circumstances.

The discussants mostly agreed with Zsolt Darvas’ characterisation of the current framework: it is complex, lacks transparency, and involves arbitrary use of flexibility which can lead to unpredictable outcomes. They also agreed that the reduction of debt to a prudent level, which leaves leeway for fiscal stabilisation in bad times, should be the ultimate goal, and that an expenditure rule with a debt correction mechanism is a good way to achieve this. However, there were doubts about the political viability of a change to the Stability and Growth Pact: most of the rules, as required by the Fiscal Compact, have been transposed into national law, which would considerably hinder their modification.

Svend E. Hougaard Jensen argued that not all countries are prone to deficit bias. For example, Nordic countries had built up fiscal surpluses before the crisis. He proposed a fiscal system based on debt targets, leaving each country to find its own way to achieve them. Kathrin Muehlbronner was sceptical about the establishment of a new European Fiscal Council, while she is very supportive of national fiscal councils. Lucio Pench argued that while an expenditure rule is the right operational target and public debt should be the long-term anchor, an intermediate objective is also needed, for example the primary balance. Focco Vijselaar argued for the benefits of multi-year fiscal targeting, and he also noted that while the 3% of GDP Maastricht deficit criterion is somewhat arbitrary, it still has an important function in avoiding gross fiscal errors, since it is a simple rule easily understood by politicians. A question was also raised during the Q&A session about the ability of this new expenditure rule to ensure an adequate aggregate fiscal stance in the euro area. Another point was that national ownership of the existing supranational rules is very weak. Some panellists were unconvinced by the authors’ central argument that simply introducing a fiscal rule which is generally recognised to be better will lead to more ownership.

VIDEO RECORDING

EVENT Materials

Zsolt Darvas – presentation

Schedule

Mar 3, 2016

12:30 - 13:00

Check-in and lunch

13:00 - 13:25

Presentation of Paper

Chair: Guntram B. Wolff, Director

Zsolt Darvas, Senior Fellow

13:25 - 14.30

Panel Discussion and Audience Q+A

Svend E. Hougaard Jensen, Non-resident Fellow

Kathrin Muehlbronner, Senior Vice President, Sovereign Risk Group, Moody's

Lucio Pench, Director, Fiscal Policies, European Commission, DG ECFIN

Focco Vijselaar, Chief Economist at the Dutch Ministry of Economic Affairs and Climate Policy

Speakers

Zsolt Darvas

Senior Fellow

Svend E. Hougaard Jensen

Non-resident Fellow

Kathrin Muehlbronner

Senior Vice President, Sovereign Risk Group, Moody's

Lucio Pench

Director, Fiscal Policies, European Commission, DG ECFIN

Focco Vijselaar

Chief Economist at the Dutch Ministry of Economic Affairs and Climate Policy

Guntram B. Wolff

Director

Location & Contact

Bruegel, Rue de la Charité 33, 1210 Brussels

Matilda Sevón

[email protected] +32 2 227 4212

Read about event More on this topic
 

Past Event

Past Event

What is the link between biodiversity loss and financial instability?

Biodiversity loss impacts financial stability. How big is the risk of biodiversity loss for financial institutions?

Speakers: Sylvie Goulard, Romain Svartzman, Guntram B. Wolff and Michael Wilkins Topic: Banking and capital markets Date: October 5, 2021
Read about event More on this topic
 

Past Event

Past Event

How to strike the right balance between the three pillars of the pension system?

In this event panelists will discuss the future of European pension schemes.

Speakers: Elsa Fornero, Svend E. Hougaard Jensen and Suvi-Anne Siimes Topic: Macroeconomic policy Date: September 23, 2021
Read article More on this topic More by this author
 

Podcast

Podcast

Unboxing the State of the Union 2021

In this Sound of Economics Live episode, Bruegel experts look at the State of the Union address delivered by Ursula von der Leyen, President of the European Commission.

By: The Sound of Economics Topic: Macroeconomic policy Date: September 15, 2021
Read about event More on this topic
 

Past Event

Past Event

The Sound of Economics Live: Unboxing the State of the Union 2021

In this Sound of Economics Live episode, we look at the State of the Union address delivered by Ursula von der Leyen, President of the European Commission.

Speakers: Grégory Claeys, Maria Demertzis, Alicia García-Herrero and Giuseppe Porcaro Topic: Macroeconomic policy Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: September 15, 2021
Read article More on this topic More by this author
 

Opinion

EU climate plan should involve taxing pollution, not borders

Climate change and taxes may be some of the only true certainties in life. To protect ourselves better, we should make careful choices on how they interact.

By: Rebecca Christie Topic: Green economy Date: September 6, 2021
Read about event More on this topic
 

Past Event

Past Event

Academic lecture: International technology competition

Bruegel Annual Meetings, Day 3 - On the final day of the Annual Meetings, our Director Guntram Wolf sits with Keyu Jin to discuss international competition policy.

Speakers: Keyu Jin, J. Scott Marcus and Guntram B. Wolff Topic: Digital economy and innovation Location: Palais des Académies, Rue Ducale 1, Brussels Date: September 3, 2021
Read about event
 

Past Event

Past Event

Conference on the Future of Europe: envisioning EU citizens engagement

Bruegel Annual Meetings, Day 3 - Panellists will discuss different options and what they may entail while revisiting the debates on the future of Europe at national and EU-level that have been conducted thus far.

Speakers: Caroline de Gruyter, Kalypso Nicolaïdis, Niclas Poitiers and György Szapáry Topic: European governance, Macroeconomic policy Location: Palais des Academies, Rue Ducale 1 Date: September 3, 2021
Read about event
 

Past Event

Past Event

Sustainable finance

Bruegel Annual Meetings, Day 3 - In this session on the final day of the Meetings, our panelists will discuss the future of finance and its sustainability.

Speakers: Maria Demertzis, Alberto De Paoli, Pierre Heilbronn and Alexandra Jour-Schroeder Topic: Banking and capital markets, Green economy Location: Palais des Académies, Rue Ducale 1, Brussels Date: September 3, 2021
Read about event More on this topic
 

Past Event

Past Event

The role of the EU's trade strategy for an inclusive and sustainable recovery

Bruegel Annual Meetings, Day 3 - We are delighted to welcome Valdis Dombrovskis, Executive Vice President of the European Commission for An Economy that Works for People to talk about Europe's trade strategy.

Speakers: Valdis Dombrovskis, Alicia García-Herrero and Guntram B. Wolff Topic: Macroeconomic policy Location: Palais des Academies, Rue Ducale 1 Date: September 3, 2021
Read about event More on this topic
 

Past Event

Past Event

Navigating a more polarised world: policy implications

Bruegel Annual Meetings, Day 2 - Are we entering a new age in the relationship between international economics and global politics? Is Europe well-equipped for this new world?

Speakers: Hélène Rey, Jean Pisani-Ferry, Adam Tooze and Sabine Weyand Topic: Global economy and trade Location: Palais des Academies, Rue Ducale 1 Date: September 2, 2021
Read about event
 

Past Event

Past Event

Blending physical and virtual: shaping the new workplace

Bruegel Annual Meetings, Day 2 - This panel will cover the changes the COVID-19 pandemic made to our workplaces, and what to expect in the near future.

Speakers: Nicholas Bloom, Michael Froman, Mario Mariniello, Sara Matthieu and Luca Visentini Topic: Inclusive growth, Macroeconomic policy Location: Academy Palace Date: September 2, 2021
Read about event
 

Past Event

Past Event

Brave new digital industrial policy

Bruegel Annual Meetings, Day 2 - In this session our speakers will discuss innovation and digitalisation.

Speakers: Francesca Bria, Kerstin Jorna, Aura Salla, Marietje Schaake and Reinhilde Veugelers Topic: Digital economy and innovation, Inclusive growth Location: Palais des Académies, Rue Ducale 1, Brussels Date: September 2, 2021
Load more posts