A helpful primer that explores the set of rules within the European fiscal framework that constrain EU Member States’ fiscal policy. The guide shows how the framework intertwines with the “European Semester” – a three-pillar system of economic governance. The paper demystifies the framework by answering five questions that cover its importance, shortcomings and how it impacts people, societal issues and the Covid-19 economic recovery in Europe. It also guides the reader through ways to create a renewed fiscal framework.
Why is the European fiscal framework so important?
What’s wrong with the EU fiscal framework?
Why should you care about reforming the fiscal framework?
What should new rules look like?
Why should you care now and what can you do?
- The EU fiscal framework reinforces fiscal policy short-termism. A complex web of rules constraining Member States’ fiscal policy, the framework tries to take into account, but inefficiently, economic cycles. It also considers spending quality and impacts from environmental and social imbalances on long-term debt sustainability.
- Highly intertwined with a system of governance aimed at enforcing these rules, the framework prevents us from reaching our social and environmental goals and could make or break economic recovery.
- Many reform proposals were tabled in the last decade to (i) reduce reliance on arbitrary numerical fiscal rules, (ii) improve quality of spending, (iii) better take context into account and to (iii) prioritise long-term social and environmental sustainability over short-term fiscal sustainability.
- Momentum now builds to align the EU fiscal framework with fiscal, social and environmental sustainability.
- Member States and European political groups remain divided on the direction the framework should take. Given this, a renewed fiscal framework will require European civil society to join forces.