Europe braces for new fiscal battles
The Stability and Growth Pact has been described as out of date and in need of a serious overhaul
The EU’s fiscal rules are widely disliked given their impenetrable and convoluted nature — yet it is difficult to avoid setting off political landmines somewhere in the union when any change to them is mooted.
In early February, the commission will tread delicately back into the debate with an overdue report on the so-called six-pack and two-pack legislative packages, which overhauled the fiscal rules during the euro crisis. Officials don’t expect the report to set china rattling in embassy parlours when it is released in Brussels on February 5; it is being couched as a retrospective look at the operation of the rules in recent years, rather than an opportunity to table reform proposals.
But a public consultation on possible future changes is also being planned — and the commissioner in charge of EU economic policy, Paolo Gentiloni, has been making no secret of his desire to shake the regime up. Meetings of finance ministers in Brussels early this week could provide early hints of the new battles ahead.
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Mr Gentiloni has described the Stability and Growth Pact, which governs the fiscal regime, as out of date and in need of a serious overhaul, given the current low growth and inflation era. On the Italian social democrat’s reform wishlist will be changes making the rules more symmetrical — allowing for countries to be pushed to boost their economies via fiscal policy in downturns, rather than just reining in deficits and debt.
This, however, would be anathema to fiscally conservative states in northern Europe. Mr Gentiloni also has to contend with Valdis Dombrovskis, the commission executive vice-president who oversees economic and financial matters — and who is stricter on fiscal policy.
Reform-minded officials will therefore also need to find less politically incendiary changes to the rulebook.
One idea is to give countries extra scope to borrow to fund green investment. The potential reform — achievable through tweaks to internal commission rules — has already run up against opposition from conservative northern European states. Mr Gentiloni is hoping the urgency of the green agenda could improve its chances.
The commission will also look at ways to simplify the rules. One option, for example, might be to place a greater emphasis on concrete measures such as public expenditure, and less on difficult-to-measure concepts such as the structural deficit.
The structural deficit is impenetrable to the public, and the cause of frequent squabbles among economists — not to mention member states. It also draws on data that can be subject to major subsequent revisions. The advisory European Fiscal Board suggested an alternative framework last September.
Any attempt to simplify the rules will also be seized upon by the duelling camps, however. Some will want to use any reform opportunity to loosen the regime. Others will wish to use the greater clarity to make the deficit rules even tighter.