Redesigning EU fiscal rules: from rules to standards

Olivier Blanchard, Alvaro Leandro and Jeromin Zettelmeyer

Economic Policy, 2021, vol. 36, issue 106, 195-236

Abstract: SUMMARYEuropean Union (EU) fiscal rules have been suspended until at least the end of 2021. When they are reinstated, they will need to be modified, if only because of the high levels of debt. Various proposals have been made and more are to come, suggesting various changes and simplifications. In this paper, we take a step back and discuss how one should think about debt sustainability in the current and likely future EU economic environment. We argue that, given the complexity of the answer, it is an illusion to think that EU fiscal rules can be simple. But it is also an illusion to think that they can ever be complex enough to accommodate most relevant contingencies. This leads us to propose the abandonment of fiscal rules in favor of fiscal standards, that is, qualitative prescriptions that leave room for judgement together with a process to decide whether the standards are met. Central to this process would be country-specific assessments using stochastic debt sustainability analysis , led by national independent fiscal councils and/or the European Commission. Disputes between member states and the European Commission on application of the standards should preferably be adjudicated by an independent institution, such as the European Court of Justice(or a specialized chamber), rather than by the Council of the EU.

Keywords: interest rates; fiscal policy; public debt; primary balance; fiscal deficit; fiscal rules; fiscal governance; fiscal standards; debt sustainability analysis (search for similar items in EconPapers)
JEL-codes: E62 F42 H60 H61 H62 H63 (search for similar items in EconPapers)
Date: 2021
References: Add references at CitEc
Citations: View citations in EconPapers (84)

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Persistent link: https://EconPapers.repec.org/RePEc:oup:ecpoli:v:36:y:2021:i:106:p:195-236.

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