Redesigning EU fiscal rules: From rules to standards
Olivier Blanchard (),
Ã lvaro Leandro and
Jeromin Zettelmeyer ()
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Ã lvaro Leandro: CaixaBank Research
No WP21-1, Working Paper Series from Peterson Institute for International Economics
The European Unionâ€™s 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. Proposals have been madeâ€”and more are to comeâ€”suggesting various changes and simplifications. Blanchard, Leandro, and Zettelmeyer take a step back and discuss how one should think about debt sustainability in the current and likely future EU economic environment. They 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. Instead, the authors propose abandoning fiscal rules in favor of fiscal standards, i.e., qualitative prescriptions that leave room for judgment 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 European Union.
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)
New Economics Papers: this item is included in nep-acc, nep-eec, nep-law and nep-mac
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