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Redesigning EU fiscal rules: from rules to standards

Author

Listed:
  • Olivier Blanchard
  • Alvaro Leandro
  • Jeromin Zettelmeyer

Abstract

SUMMARYEuropean Union (EU) 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. Various proposals have been made and more are to come, suggesting various changes and simplifications. In this paper, we take a step back and discuss how one should think about debt sustainability in the current and likely future EU economic environment. We argue that, given the complexity of the answer, it is an illusion to think that EU fiscal rules can be simple. But it is also an illusion to think that they can ever be complex enough to accommodate most relevant contingencies. This leads us to propose the abandonment of fiscal rules in favor of fiscal standards, that is, qualitative prescriptions that leave room for judgement together with a process to decide whether the standards are met. Central to this process would be country-specific assessments using stochastic debt sustainability analysis , led by national independent fiscal councils and/or the European Commission. Disputes between member states and the European Commission on application of the standards should preferably be adjudicated by an independent institution, such as the European Court of Justice(or a specialized chamber), rather than by the Council of the EU.

Suggested Citation

  • Olivier Blanchard & Alvaro Leandro & Jeromin Zettelmeyer, 2021. "Redesigning EU fiscal rules: from rules to standards," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 36(106), pages 195-236.
    • Handle: RePEc:oup:ecpoli:v:36:y:2021:i:106:p:195-236.
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    File URL: http://hdl.handle.net/10.1093/epolic/eiab003
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    Keywords

    interest rates; fiscal policy; public debt; primary balance; fiscal deficit; fiscal rules; fiscal governance; fiscal standards; debt sustainability analysis;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General
    • H61 - Public Economics - - National Budget, Deficit, and Debt - - - Budget; Budget Systems
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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