In its annual report presented on Wednesday 4 October, the European Fiscal Board believes that figures showing a clear improvement in the levels of public deficit and public debt in nominal terms in 2022 as a result of the post-Covid-19 economic rebound are “misleading”.
In fact, according to the committee, “net expenditure growth [...] paints a completely different picture. [...] It points to a deterioration of underlying expenditure trends especially in high debt and very high-debt countries (above 60% of GDP and 90% of GDP, respectively), where net expenditure growth continued to significantly exceed the prudent benchmark rate of medium-term potential growth”, it adds. This trend is even more marked when we exclude the emergency measures to combat the Covid-19 pandemic and to support energy prices, which are supposed to be temporary measures.
Currently being negotiated by the Council of the EU and the European Parliament, the reform of the European economic governance framework should introduce a net public expenditure criterion from 2025 onwards, which would apply to Member States with excessive debt over the entire duration of their national macroeconomic plan (see EUROPE 13262/13).
The European Fiscal Board supports this development, which will simplify the fiscal rules, and calls for a rapid interinstitutional agreement, despite some reservations about the European Commission’s initial proposal in April (see EUROPE 13170/1). In particular, it believes that certain investments with a European dimension in sectors such as energy and transport would be better financed via a “central fiscal capacity”, an instrument that the Commission has ruled out for lack of sufficient support in the EU Council.
The European Fiscal Board discusses the issue of quantitative criteria, which are opposed by Germany and France (see EUROPE 13203/2), designed to impose across-the-board obligations to consolidate public finances in countries with excessive debt.
The Chairman of the European Fiscal Board, Niels Thygesen, was not categorically opposed to this provision, believing that, if necessary, it would be preferable to link it to the “reduction of public debt” in the medium term. “There are ways to strengthen the framework beyond adding further common benchmarks: constrain the scope for extending the adjustment period, enhancing monitoring by national fiscal councils”, he argued. He added that “implementation [of future rules] is key, as in the past”.
To see the European Fiscal Board report, go to https://aeur.eu/f/8vr (Original version in French by Mathieu Bion)