Year LXIV, 2022, Single Issue, Page 77
REFORM OF THE STABILITY AND GROWTH PACT:
AN INTERIM PROPOSAL
Reform of the EU’s fiscal rules, and of European economic governance generally, gets right to the heart of federalist action as it concerns the Union’s competences in economic matters, the same area on which the foundations of the United States of America were laid. Reform of the EU fiscal rules is a subject long debated by stakeholders, and in all the interventions prompted by this debate, there has been widespread agreement on the need for some changes.
In February 2020, the Commission presented a wide-ranging review of EU economic governance and launched a debate on its future. However, almost immediately afterwards, to allow the member states to devote all the necessary resources to combating the economic crisis caused by the outbreak of the Covid-19 pandemic, the European Commission triggered the general escape clause, thereby allowing temporary deviation from the EU fiscal rules for a duration that was subsequently extended to the end of 2023 due to the energy crisis caused by the war in Ukraine.
It is against this backdrop that the European Commission, on 9 November, 2022, adopted a Communication setting out orientations for reform of the Stability and Growth Pact. This document, anticipating the contents of the legislative acts that the Commission itself intends to adopt in the coming months, represents a step forward in the discussion on reform of European economic governance. Its aim is to bring the new rules into force before the general escape clause is deactivated, so as to prevent a return to the old ones.
First of all, the Communication envisages that only the regulations of the Stability Pact and their subsequent amendments and additions will be modified. The deficit and debt parameters contained in protocol no. 12 TFEU will remain unchanged, thereby avoiding the need to use the ordinary revision procedure under Article 48 TEU, which would involve ratification by all member states. The Commission also chooses not to address issues of a more far-reaching nature, such as the possibility of building a permanent fiscal capacity, while nevertheless acknowledging that this has been proposed by several experts involved in the discussion, such as Codogno and Van Den Noord.
The new economic governance framework hinges on national medium-term fiscal-structural plans, designed to merge the current Stability and Convergence Programmes with the National Reform Programmes that the member states are currently required to submit to the Commission by the end of April each year. In the latter, the states set out the specific policies they will implement to boost jobs and growth and prevent or correct macroeconomic imbalances, and their concrete plans to comply with country-specific recommendations and fiscal rules. This new approach would have the effect of eliminating the tight annual fiscal constraints currently in force, and thus increasing the member states’ planning capacities. The Commission's clear objective is to increase national ownership of the EU fiscal rules, a fundamental aspect in regard to which the current system has always been accused of falling short. To effectively achieve this greater ownership, the multiannual plans should be characterised by a certain level of flexibility and should focus on macro quantitative targets, so as to make it easier for governments of different political hues to embrace them.
The second important aspect is the elimination of the rule stating that member states must reduce, by one twentieth per year, the amount of their public debt exceeding 60 per cent of GDP. The Commission acknowledges that the higher a state’s public debt stock is, the more difficult it will be for that state to comply with this rule, a difficulty now clearly exacerbated by the debt increases linked to the pandemic. The new debt reduction path towards 60per cent of GDP will be guided by country-specific fiscal trajectories contained in the member states’ medium-term plans, which will also include commitments to make certain investments and reforms. The debt reduction will be achieved through the application of a “reference multiannual adjustment path in terms of net primary expenditure”, put forward by the Commission and covering at least 4 years. The plan would differ according to whether the country it concerns has a substantial, moderate or low public debt challenge, thereby making it possible to guarantee greater adaptability of the rules to the conditions of each state, and easier to respect the EU objectives.
However, the federalist judgement on this proposal must nevertheless take into account the fact that it is a first step towards a broader political discussion. The failure to address the issue of a permanent fiscal capacity, like the ambiguities and gaps that still remain in the document, and the envisaged role of the European Parliament, should not to be taken as signs of closure on the part of the Commission, but rather as a reminder of the need for a federalist contribution able to advance the still fledgling political debate. The Commission itself, in acknowledging that “several contributors to the public debate have called for a permanent central fiscal capacity”, is itself signalling that it would not view this proposal unfavourably were it to emerge as a shared position. The absence of modification of the protocols containing the Maastricht parameters becomes an aspect of secondary importance once the pathway to achieving these parameters is modified. For this reason, the Communication must be judged positively overall, considering the technical adjustments made to the rules and hoping that, in the course of the political debate that will unfold in the coming months, the doors for more ambitious steps forward will not be closed a priori.
Federico Bonomi
Bibliography
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