EU AGAIN DEBATS ON FISCAL RULES

The Union could once again approach them flexibly, as it did in 2015

The European Union (EU) is on track to resume a debate it fears: whether and how to reform its common fiscal rules. Almost everyone finds something they don‘t like - too restrictive if you want to spend more, too loose if you want others to spend less, and too complicated in both cases. However, no one has high hopes that governments, with their very different attitudes towards budgeting, will negotiate a way forward, Martin Sandbu wrote for the Financial Times.

One of the options considered is to repeat the choice made in 2015, when the European Commission published a „communication“ stating that it would play a more flexible role in monitoring Member States’ budgets. Referring to the discretion that the rules give to the commission, Brussels has unilaterally announced - with initial opposition from governments - that it will tolerate larger deficits in countries committed to recommended structural reforms or investment.

The Тreaty leaves the commission some leeway when it comes to its opinion at the end of the process on whether there is an excessive deficit or not. This may include details of how deficits and debts are calculated, or that even after the calculations have been made, Brussels „is expected to have a holistic view“.

One possible interpretation is to emphasize that the Treaty describes debt and deficit requirements as „benchmarks“, rather than limits. The question is what should mean „reference“.

Another obvious way of arguing is that once the EU and its Member States are committed to the carbon transition, the commission can treat what it considers „green“ costs more leniently and even completely exclude decarbonization-related investments.

If the commission still embarks on the path of „flexibility“, it will have as much political as well as economic or legal significance. Fiscal pigeons and hawks disagree on whether fiscal rules need to be improved before their pandemic abolition ends (which should happen by the end of 2022), or whether the status quo can remain a compromise if not reached agreement. A new communication to establish flexibility would shift the balance of power in this debate by changing the standard interpretation of existing rules.