The EU has responded forcefully to the economic crisis brought about by COVID-19. The ECB’s aggressive easing and exceptional national fiscal stimulus measures have been complemented by unprecedented action at the EU level, thereby providing extensive support to vulnerable member states and broadening fiscal space.
Exigent circumstances justify exigent measures. But while responding strongly and effectively to the imminent risk of something resembling the euro crisis, the COVID-19 measures risk leaving the EU more vulnerable in the longer run. While explained as exceptional and temporary, they transform the EU into an incomplete fiscal union, which is fragile in the face of future shocks. These measures need to be balanced with strengthened market discipline and – ultimately – backed up by clear divisions of competence, unambiguous assignment of responsibility, and efficient decision-making structures.
Qu est-ce que la taxe Gafa ? - Touteleurope eu touteleurope.eu - get the latest breaking news, showbiz & celebrity photos, sport news & rumours, viral videos and top stories from touteleurope.eu Daily Mail and Mail on Sunday newspapers.
The EU’s fiscal rules have been suspended until at least the end of 2021. When they are reinstated, they will need to be modified, if only because of the high levels of debt. Proposals have been made suggesting various changes and simplifications. The gist of most proposals is to retain the 60% debt ratio as a long-term debt anchor and a dividing line between the fiscal rules that apply for countries with debts above and below, while replacing the plethora of existing rules and procedures with an expenditure rule that allows fluctuations in the deficit driven by cyclical changes in revenue.
Why Europe s Left Wants A European Financial Superstate zerohedge.com - get the latest breaking news, showbiz & celebrity photos, sport news & rumours, viral videos and top stories from zerohedge.com Daily Mail and Mail on Sunday newspapers.
Peter Bofinger
The strong fiscal-policy response from the European Union needed to deal with the severe economic shock represented by the Covid-19 pandemic was only made possible by finance ministers agreeing on March 23rd, for the first time, to activate the ‘general escape clause’ of the EU fiscal framework. It is very likely, however, that that clause will be reinvoked in 2021 and 2022. But what happens if the conventional rules are reinstated?
During the pandemic the state of public finances in all countries has deteriorated significantly. According to forecasts by the International Monetary Fund, in several euro-area member states in 2021 the ratio of debt to gross domestic product will be around double (Belgium, France, Spain and Portugal) or even triple (Italy, Greece) the 60 per cent ceiling set by the Maastricht treaty (Figure 1).