Six economists from the European Stability Mechanism (ESM), the euro area’s permanent rescue fund, are proposing to reform the Stability and Growth Pact by, among other things, raising the general government debt reference for Member State to 100% of GDP.
“We suggest ways to simplify the rules to acknowledge the new economic reality and higher debt-carrying capacity (of states), possibly without the need for any (European) treaty change”, the authors write in their paper, published at the end of October.
The economists maintain a two-pillar approach that utilises a 3% fiscal deficit ceiling and a 100% general government debt reference value that incorporates an expenditure rule. These ceilings would be accompanied by a combination of a primary balance and an expenditure rule which would help anchor the pace of debt reduction for countries with public debt above 100% gross domestic product (GDP).
The economists also suggest a fiscal stabilisation function at the level of the euro area to help the Nineteen cope with external macroeconomic shocks.
The Eurogroup will discuss the objectives of the reform of the European economic governance framework on Monday 8 November.
See the proposals: https://bit.ly/3GQwuXi (Original version in French by Mathieu Bion)