Reforming the EU budget rules

The current EU budget rules are not fit for purpose under the Stability and Growth Pact (SGP) and the Maastricht Treaty. As a reminder, the budgetary rules imposed by the Maastricht Treaty on Member States are to maintain a maximum public deficit of 3% of their GDP and a public debt below 60% of their GDP. The GSP implies that Member States must achieve a balanced budget in the medium term and that those exceeding the 3% threshold will have to be sanctioned economically. As a matter of fact, they are nowadays more of a reference point and a means of reassuring the financial markets and are struggling to be effective both in the face of problems inherent in the construction of Europe and unforeseen one-off crises. It is therefore important to highlight the weaknesses of these current standards and to propose measures to improve or replace them.

A reform of the European Semester

The European Semester is the system which today determines the functioning of the Union's budget within the framework of the criteria of the Treaties and the GSP. It is therefore particularly effective in the context of respecting this budgetary discipline and makes sense when all Member States respect these criteria.

However, not all Member States can respect these extremely rigid deficit and debt levels, and the Union has been enlarged without ensuring that these criteria are respected (see the case of Greece). Moreover, the European semester now tends to focus solely on economic issues and tends to make social considerations secondary.

Thus, it is necessary to continue to concentrate budget investments on social measures as well as on biases to limit excessive inequalities between states. Exchanges between Member States, such as in the context of the COVID crisis, must also be framed and facilitated to allow for greater solidarity in operation.

The end of the "each Member State for itself" system

This question of solidarity also calls into question the current budgetary rules, in particular the one concerning the level of debt and the sanctions by the Commission for breaches of these criteria. These criteria impose too great a disparity between the Member States, between those who manage to respect the criteria and those who are always sanctioned by the Commission. As a result, integration between Member States is considerably slowed down by these inequalities.

Thus, it is necessary to rethink the surveillance mechanism[1] planned a posteriori for the European Commission and to place it a priori in order to better accompany the Member States in their structural reforms. This accompaniment would allow a better understanding of the fiscal framework by the Member States, which could have a gradual adjustment of their respective debt levels, rather than threatening them with sanctions. 

The goal here is to allow the European Commission to take a real responsibility of surveillance in amount to keep the global interest of all Member States instead of the particular ones. As a matter of fact, it should not be inconsistent to allow the slowdown of a particular economy to allow another one to increase, a measure which would let the common budget being consolidated.

A common fiscal responsibility

The most important point that calls into question the effectiveness of the current fiscal rules and the lack of collective responsibility for the tax system and public debt management. As the Commission's issuance of Eurobonds to finance the post-COVID recovery has shown, Member States must take full responsibility[2] for the management and consequences of common fiscal policies.

The criteria imposed by the SGP and the Maastricht Treaty cannot work without a common entity managed by the Commission. The Recovery and Resilience Facility proved this, as it gave a long-term recovery objective on the one hand and raised the interest of the States in the common management of the budget on the other.

Thus, if the current criteria impose on the Commission a role as 'guardian' of austerity policies, it is because they do not take sufficient account of the importance of financial incentives. The Eurozone crises, and then the COVID crisis in particular, have shown that a common fiscal framework is needed to best respond to current and unforeseen challenges. The Member States must do their part as much as the Commission in the necessary structural reforms.

[1] Marzinotto and Saphir, 2012/09, “Fiscal Rules: Timing is everything”, Bruegel Policy Brief, p.7

[2] Pisani-Ferry Jean, 2021/04/29, “Europe Needs a New Fiscal Framework”, Project Syndicate

Pierre Jouin

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