Reforming EU Fiscal Rules: More Leeway, Investment Orientation and Democratic Coordination
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DOI: 10.1007/s10272-020-0915-z
Achim Truger
Reforming EU Fiscal Rules: More Leeway, Investment Orientation and Democratic Coordination In February 2020, the European Commission started its Economic Governance Review, in which EU fiscal rules obviously play a prominent part. The unprecedented economic crisis caused by the COVID-19 pandemic has understandably shifted attention away from the fiscal framework. In March, the European Council activated the general escape clause of the Stability and Growth Pact (SGP) and since then the debate focused on EU level emergency measures to overcome the crisis. After a somewhat shaky start, the EU responded with collective financial support. Safety nets worth €540 billion were approved in April, with credit lines for all member states. Encouraged by the joint initiative of Emmanuel Macron and Angela Merkel, a one-off recovery plan for Europe with €750 billion was approved – part of which is earmarked in particular as direct support for heavily affected states. The funds are to be raised through borrowing in the name of the EU, to be serviced through the EU budget – partly through its to-be-created own tax revenues. The agreement reached at the EU summit in July 2020 represents a major breakthrough on the road to reforming the EU’s fiscal governance, which had largely come to a standstill before the crisis. EU fiscal rules, however, still urgently need a reform in order to strengthen the role of fiscal policy. First, the abolition of national monetary policy in the euro area means that fiscal policy must play a much larger role in stabilising national economies. The ECB has to orient its interest rate policy by the Economic and Monetary Union (EMU) average and therefore is unable to respond to specific economic circumstances in individual countries. In the absence of fiscal countermeasures at the national level, this threatens to create persistent boom-bust cycles capable of endangering the stability of the EMU. Second, particularly during periods of crisis, fiscal policy must support monetary policy, whose stabilisation possibilities are restricted at the zero lower © 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.
Achim Truger, University of Duisburg-Essen; and German Council of Economic Experts, Wiesbaden, Germany.
ZBW – Leibniz Information Centre for Economics
bound for interest rates. Third, as recent empirical results for the fiscal multiplier show, fiscal policy is much more effective macroeconomically than previously assumed, especially in periods of crisis. Fourth, fiscal policy must enable strong long-term productivity growth through high and consistent public investment in traditional and ecological infrastructure and in education and research. The threat of further austerity The crucial importance of fiscal policy for macroeconomic development in the euro area i
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