The @EU_Commission published its long-awaited proposals for a reform of EU #fiscal rules (https://ec.europa.eu/commission/presscorner/detail/en/IP_23_2393) full of bright and dark moments. First and foremost: Where is democracy? An explanatory thread with some personal views:
🐦🔗: https://n.respublicae.eu/repasi/status/1651322424338653191
1/ There is the preventive arm of the Stability and Growth Pact (#SGP) dealing with deficits below 3.0 % of GDP. It introduces the new limits for public spending and how it is implemented: https://economy-finance.ec.europa.eu/document/download/6d456c53-5267-4519-a958-8f4723f92f6a_en?filename=COM_2023_240_1_EN.pdf
🐦🔗: https://n.respublicae.eu/repasi/status/1651322430768533505
2/ It defines which expenditure is covered by the newly introduced 'net expenditure path': basically everything but interest expenditure & discretionary revenue measures. It includes hence expenditure for investments and structural reforms. The old investment clause is deleted!
🐦🔗: https://n.respublicae.eu/repasi/status/1651322437068374018
3/ This is a major blow: Privileging investments in climate transition was a major policy tool for the EU under the old SGP and its expansion was the offer by Germany to respond to the need for public investments. Not sure whether that is a good choice by the Commission.
🐦🔗: https://n.respublicae.eu/repasi/status/1651322449110134790
4/ The net expediture path must meet four criteria: (1) debt ratio that is on a 'plausibly' (fantastic term!) downward path, (2) deficit that is below 3% GDP, (3) debt ratio must be less after 4 years, and (4) net expenditure growth remains below medium-term output growth.
🐦🔗: https://n.respublicae.eu/repasi/status/1651322454122323970
6/ Member States have to submit 'medium-term fiscal-structural plans' valid for a period of 4 years defining their net expenditure path and investment and reforms. Under certain conditions these plans can be extended by further 3 years.
🐦🔗: https://n.respublicae.eu/repasi/status/1651322464478035968
7/ The national medium-term fiscal-structural plans are assessed against a benchmark plan defined by the COM ('technical trajectory'). Failure to deliver an acceptable national plan leads to the COM benchmark plan to be the applicable national plan!
🐦🔗: https://n.respublicae.eu/repasi/status/1651322470882766848
8/ If you wonder now: Where are the #Parliaments? Nowhere. The proposal repeat for the European Parliament the old rather meaningless 'Economic Dialogue'. National Parliaments are only optional as recital 16 clarifies. Major problem!
🐦🔗: https://n.respublicae.eu/repasi/status/1651322476255739907
9/ What does the Council - which has to approve the national medium-term fiscal-structural plans - have to do? Well, it has to approve! And if not: to explain itself publicly!
🐦🔗: https://n.respublicae.eu/repasi/status/1651322480533860356
10/ The content of the each national medium-term fiscal-structural plan is to be negotiated bilaterally between the national government and the Commission - behind closed doors, of course! Tellingly, it is called 'technical dialogue', although it is highly political.
🐦🔗: https://n.respublicae.eu/repasi/status/1651322484409483265
11/ Failure to act leads to recommendations, public warnings, and sanctions. Or: refusal to extend the validity of the medium-term fiscal-structual plan by 3 years. Incentive to comply? Not really! Better: proper permanent fiscal capacity to incentivise compliance (@mmargmarques)
🐦🔗: https://n.respublicae.eu/repasi/status/1651322490713505792
12/ Turning to the Excessive Deficit Procedure, to which the corrective arm of the SGP (https://economy-finance.ec.europa.eu/document/download/72628042-ee7a-46be-8ba3-b8389ef53175_en?filename=COM_2023_241_1_EN.pdf) applies. It is opened after the Council has decided that there is an 'excessive deficit' (Art. 126(6) TFEU). The mere transgression of the 3% or 60% is not sufficient.
🐦🔗: https://n.respublicae.eu/repasi/status/1651322494714884098
13/ Interestingly, if a Member State has a debt level of more than 60% of GDP, the EDP is not opened if this Member State is still respecting its net expenditure path (then the deficit is sufficiently diminishing and not 'excessive', see Article 126(2)(b) TFEU).
🐦🔗: https://n.respublicae.eu/repasi/status/1651322498745618432
14/ If a Member States, however, exceeds after an EDP is opened the annual deficit upper threshold of 3% of GDP, the net expenditure allowed for this Member State is adjusted downwards annually by 0.5% of GDP. 👋🇩🇪
🐦🔗: https://n.respublicae.eu/repasi/status/1651322507083890694
15/ This replaces the old "one twentieth" rule under which a Member State had to reduce the differential between its actual debt level and the 60% objective by 1/20 of this differential per year. Nobody will miss this rule! Yet, the new rule can also have procyclical effects.
🐦🔗: https://n.respublicae.eu/repasi/status/1651322513593384961
16/ What is still to report? The proposals codify the 'general escape clause' (which actually never really existed) and provide for a stronger role for Independent Fiscal Institutions (IFI, see Directive 2011/85/EU: https://economy-finance.ec.europa.eu/document/download/663d7e01-9636-4410-ae48-d8616871e14d_en?filename=COM_2023_242_1_EN.pdf).
🐦🔗: https://n.respublicae.eu/repasi/status/1651322518483922944
Conclusion: Good: net expenditure rule and the abolition of the 0.5% GDP budgetary objective and of the 1/20 rule. Critical: vague criteria and bilateral negotiations. Bad: absence of Parliaments and fiscal capacity. Interesting debates ahead. /END
🐦🔗: https://n.respublicae.eu/repasi/status/1651322522929885185
5/ 'Plausibility', which refers to a debt projection (under the Debt Sustainability Monitor), and 'medium-term output growth' are complicated but also problematic benchmarks as they can have pro-cyclical effects and rely heavily on certain economic assumptions (made by the COM).
🐦🔗: https://n.respublicae.eu/repasi/status/1651322460019490818