Finance Watch included seven main ways to reform the EU economic governance framework.
Key reform proposals
- Move the arbitrary debt anchor from 60 to 90 or 100% debt-to-GDP value, and reform its scope of application to cover only the share of the debt stock exposed to market scrutiny – i.e. the debt stock net of debt held by the Eurosystem and the European Stability Mechanism.
- Expand and improve the monitoring of debt unsustainability drivers by, first, increasing the role of country-specific debt sustainability analyses in the Stability and Growth Pact (SGP) and, second, by including a debt sustainability section in the Macroeconomic Imbalances Procedure (MIP). Crucially, climate-related fiscal risks and resilience-related fiscal risks must be better understood and monitored.
- Replace impracticable debt reduction rules with country-specific debt pathways.
- Move from two deficit rules to a unique expenditure rule that caps expenditures net of interest, one-off and cyclical expenditures and net investment (up to a certain threshold). Building on private accounting best practices, investment costs are spread over the investment lifetime.
- Create unique National Reform and Investment Plans (NRIPs) and allow newly-formed governments to submit a list of strategic expenditures (and investment exceeding aforementioned threshold) to be excluded from their expenditure ceilings.
- Improve the mandate and expand the tasks of Independent Fiscal Institutions (IFIs). A particular emphasis should be put on producing country-specific debt sustainability analysis and monitoring spending quality. Crucially, their governance arrangements should ensure balanced composition and minority views.
- Create at EU level, first, a stabilisation fiscal capacity activated alongside the general escape clause and, second, a permanent investment facility for important projects of common European interest.