The EU Commission has presented a reform proposal for the EU fiscal rules, which are intended to limit the national debt of the member states.
Economics professor Achim Truger explains in the guest article why this reform offers a great opportunity and why the federal government should give up its resistance to it.
Duisburg – The EU fiscal rules are intended to limit the national debt of the member states.
Due to the severe economic crisis caused by Corona and the energy price shock, the rules have been suspended since 2020.
By using the general exception clause, the EU states were able to borrow more and support citizens and companies in order to avoid damage to prosperity and employment.
However, the exception clause cannot be drawn on forever.
A return to the rules is therefore planned for the coming year.
Without reforming the fiscal rules, however, there is a risk of disaster, especially with regard to the so-called debt level criterion: countries whose debt level exceeds 60 percent of gross domestic product must move it towards 60 percent quickly enough.
This could hit countries badly hit by the euro and corona crisis, such as Italy, Spain and Portugal, but also France, whose debt levels are well over 100 percent due to the crisis.
They could be forced into a very harsh austerity policy.
Then there is the threat of a renewed economic crisis, as a result of which debt levels would rise rather than fall.
voice of economists
Climate change, corona pandemic, Ukraine war: Rarely before has interest in the economy been as great as it is now.
This applies to current news, but also to very fundamental questions: How do the billions in corona aid and the debt brake go together?
What can we do about the climate crisis without jeopardizing our competitiveness?
How do we secure our pension?
And how do we generate the prosperity of tomorrow?
In our new series,
Voice of the Economists,
Germany's leading economists provide guest contributions with assessments, insights and study results on the most important economic issues - profound, competent and opinionated.
Reform of the EU fiscal rules: The resistance of the northern European countries is great
Fortunately, the EU Commission has recognized the problem and some time ago presented a corresponding reform proposal that also addresses the other problems of the set of rules: the rules are to be less complex and more transparent and more binding in their implementation, and they are to be given more leeway for growth-promoting public leave investments.
In order for the reform to be implemented in good time before 2024, an agreement must be reached quickly, ideally at the EU summit in March.
But the resistance of the northern European countries is great.
They are supported by Federal Finance Minister Christian Lindner, who described the proposal as "unacceptable".
However, the arguments presented are not very convincing.
Firstly, according to media reports, the main goals of the reform proposal are shared: there is agreement that the current rules do not work, that the timetable for debt reduction must be made more flexible and that new investment needs must be taken into account.
Secondly, the vehement warning that it is imperative that the debt reduction paths for the countries are comprehensible, credible and calculable fits more with the old rules in need of reform than with the proposal of the EU Commission, which is striving for precisely such reduction paths.
According to the proposal, highly indebted states would have to strictly comply with upper limits for government spending for four years – up to seven years in the case of commitment to demonstrably growth-enhancing investments or structural reforms – according to a plan agreed with the Commission.
also read
Is the double boom still needed?
The new ace up Lindner's sleeve
Is the double boom still needed?
The new ace up Lindner's sleeve
Why new EU debt is irresponsible
Why new EU debt is irresponsible
Dependence on China: diversify and learn from mistakes
Dependence on China: diversify and learn from mistakes
This would gradually reduce the budget deficit in an economically acceptable manner to a level at which the debt ratio would swing towards a sustainable reduction path towards 60 percent.
Exceeding the spending limits would be punished with an excessive deficit procedure.
Compliance with the spending limits would be much more transparent and easier to monitor and therefore more binding than the previous complicated deficit rules, the varied implementation of which is described in detail on more than 100 pages.
The Commission proposal offers a great opportunity
It is true that the proposed reform would give the Commission a great deal of power and possibly great discretion.
However, this should be countered with high demands on the transparency of the procedure and with a critical and open discourse.
On the other hand, stricter uniform requirements for all countries or a return to the old rules would be wrong, since it has been shown that they then regularly fail in implementation, which undermines their credibility.
The Commission's proposal offers a great opportunity to implement more binding targets for limiting public debt in an economically viable manner and with greater scope for public investment.
The federal government should recognize the opportunity and give up its opposition to the plans.
About the author: Achim Truger is a member of the German Council of Economic Experts and Professor of State Activities and Public Finances at the University of Duisburg-Essen.