Adapting the EU Economic Governance to New Macroeconomic and Political Realities
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DOI: 10.1007/s10272-020-0922-0
Raffaele Fargnoli*
Adapting the EU Economic Governance to New Macroeconomic and Political Realities There was a widespread consensus on the need to modify fiscal rules in the EU even before the COVID-19 crisis. The aim of this article is to reflect on the reform of fiscal rules from a broader perspective, looking at three different dimensions: the political economy of fiscal rules in the current political and economic environment, the renewed debate about fiscal policy roles and objectives, as well as the current incomplete nature of the European Monetary Union and the prospects for its completion. The main contribution of this paper is to analyse EMU fiscal policy and the related governance modes from a broader perspective. Furthermore, the article briefly discusses ideas for a new model of fiscal and economc surveillance based on a cooperative governance system in order to better fit with with current macroeconomic and political realities. Even before the COVID-19 crisis, which has led to the suspension of the Stability and Growth Pact (SGP) through the activation of the general escape clause to be invoked in a severe economic downturn, there was a widespread consensus on the need to modify fiscal rules configuration. Current rules are criticised for complexity, procyclicality bias and scarce adaptability to macroeconomic circumstances not driven by very exceptional events. This article is based on Fargnoli (2020) and discusses the reform of fiscal rules across three different dimensions: i) the political economy of fiscal rules in the current political and economic environment; ii) the renewed debate about fiscal policy roles and objectives; iii) the current incomplete nature of the European Monetary Union (EMU) and the prospects for its completion. The reflection over the first two dimensions emphasises that fiscal policy prescriptions stemming from the SGP framework are now suffering from a gap of legitimacy both in terms of ownership (being capable of achieving a synthesis of bold and diverging national preferences) and regarding their output (capacity to deliver on multiple goals). The third dimension highlights the need to rethink the analytical relation between the incomplete nature of the EMU, which is likely to persist in the near future, © The Author(s) 2020. Open Access: This article is distributed under the terms of the Creative Commons Attribution 4.0 International License (https://creativecommons.org/licenses/by/4.0/). Open Access funding provided by ZBW – Leibniz Information Centre for Economics. *
The information and views set out in this article are those of the author and do not necessarily reflect the official opinion of the European Commission.
Raffaele Fargnoli, European Commission, Brussels, Belgium.
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and the implications for fiscal and economic policy coordination, in particular regarding the need to recover from the coronavirus crisis and to manage its long-term consequences. The political economy of fiscal rules The literature on fiscal rules emphasises that the
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