ECONOMY

EU fiscal reform proposals

Greek Parliament’s budget office calls for doing away with one-size-fits-all debt limits

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Parliament’s Office of the State Budget has submitted proposals on reforming European Union fiscal rules, calling for the replacement of the uniform debt limit rule, making the Recovery and Resilience Fund permanent and exempting green investments from public spending targets.

The office submitted a list of seven proposals for the EU’s new fiscal framework at the request of Finance Minister Christos Staikouras, ahead of the resumption of negotiations on fiscal reform, which began in 2019 but were suspended during the Covid-19 pandemic.

The proposals can be summed up as follows:

1. Define realistic targets for the acceptable level of public debt, tailored to each member-state, instead of the uniform 60% of GDP level. The targets should take into account the initial debt level, financing needs, broader economic conditions such as nominal GDP growth and interest rates and fiscal adjustment capabilities.

2. The medium-term objective as a percentage of GDP, that is, the primary deficit result after accounting for one-off fiscal measures, should stop being the main measuring stick of a member-state’s compliance, because it is too complex. It should maybe remain as an auxiliary measure.

3. The rate of net public expenditure increase should become the main benchmark measuring fiscal performance and convergence toward the desired debt level. This measure is easy to grasp and its rate of change should be set in a way that leads to debt dropping to the desired level.

4. Part of public expenditure, clearly defined by objective criteria, should be exempted from the definition of net expenditure. For example, green public investments and the cost of transitioning to clean energy could be deducted.

5. The Recovery and Resiliency Fund should evolve into a permanent macroeconomic stabilization mechanism, supported by a large EU-wide budget, financed by taxation and market borrowing.

6. Provide for a national escape clause in emergency conditions.

7. Ensure the independent and objective assessment of fiscal conditions by independent bodies such as the Parliament’s State Budget Office and the National Fiscal Council.

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