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Taking stock of the functioning of the EU fiscal rules and options for reform

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  • Kamps, Christophe
  • Leiner-Killinger, Nadine

Abstract

This paper reviews developments in fiscal rules in the European Union (EU) from the entering into force of the Treaty on European Union (the “Maastricht Treaty”), which laid the foundations for the euro, until today. It seems safe to say that fiscal positions in the EU and the euro area are now more favourable than they would have been in the absence of the Maastricht Treaty and the Stability and Growth Pact (SGP). However, the aggregate picture masks significant cross-country heterogeneity, with less progress where it would be needed most. Furthermore, the design of the rules has not always followed economic logic and has often been the product of political constraints, giving rise to some flaws in the framework from the outset. Repeated attempts to adjust the fiscal framework to a multitude of circumstances over the past 25 years have made it overly complex and incoherent. The paper concludes that, in its current shape, the SGP is an insufficient disciplining device in economic good times, with the consequence that there are no fiscal buffers, particularly in high-debt countries, to support growth in economic troughs. This, together with the absence of a central fiscal stabilisation instrument, puts the burden of stabilisation mostly on the single monetary policy. The paper also reviews reform options on how to render the fiscal framework more effective in bringing about sounder public finances and avoiding the procyclicality observed over the past two decades. JEL Classification: H11, H50, H6

Suggested Citation

  • Kamps, Christophe & Leiner-Killinger, Nadine, 2019. "Taking stock of the functioning of the EU fiscal rules and options for reform," Occasional Paper Series 231, European Central Bank.
  • Handle: RePEc:ecb:ecbops:2019231
    Note: 491621
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    References listed on IDEAS

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    Cited by:

    1. Sigl-Glöckner, Philippa & Krahé, Max & Kern, Florian & Schuster, Florian, 2022. "A proposal for reforming the Stability and Growth Pact," Papers 277897, Dezernat Zukunft - Institute for Macrofinance, Berlin.
    2. Hauptmeier, Sebastian & Kamps, Christophe, 2022. "Debt policies in the aftermath of COVID-19 — The SGP’s debt benchmark revisited," European Journal of Political Economy, Elsevier, vol. 75(C).
    3. Debrun, Xavier & Masuch, Klaus & Ferrero, Guiseppe & Vansteenkiste, Isabel & Ferdinandusse, Marien & von Thadden, Leopold & Hauptmeier, Sebastian & Alloza, Mario & Derouen, Chloé & Bańkowski, Krzyszto, 2021. "Monetary-fiscal policy interactions in the euro area," Occasional Paper Series 273, European Central Bank.
    4. Olga Francová & Ermal Hitaj & John Goossen & Robert Kraemer & Andreja Lenarčič & Georgios Palaiodimos, 2021. "EU fiscal rules: reform considerations," Discussion Papers 17, European Stability Mechanism, revised 25 Oct 2021.
    5. Ginters Buss & Patrick Gruning & Olegs Tkacevs, 2021. "Choosing the European Fiscal Rule," Working Papers 2021/03, Latvijas Banka.
    6. Hauptmeier, Sebastian & Kamps, Christophe, 2020. "Debt rule design in theory and practice: the SGP’s debt benchmark revisited," Working Paper Series 2379, European Central Bank.
    7. Benalal, Nicholai & Freier, Maximilian & Melyn, Wim & Van Parys, Stefan & Reiss, Lukas, 2022. "Towards a single fiscal performance indicator," Occasional Paper Series 288, European Central Bank.
    8. Mihaela Onofrei & Tudorel Toader & Anca Florentina Vatamanu & Florin Oprea, 2021. "Impact of Governments’ Fiscal Behaviors on Public Finance Sustainability: A Comparative Study," Sustainability, MDPI, vol. 13(7), pages 1-16, March.
    9. Căpraru, Bogdan & Georgescu, George & Sprincean, Nicu, 2022. "Do independent fiscal institutions cause better fiscal outcomes in the European Union?," Economic Systems, Elsevier, vol. 46(2).
    10. Haroutunian, Stephan & Bańkowski, Krzysztof & Bischl, Simeon & Bouabdallah, Othman & Hauptmeier, Sebastian & Leiner-Killinger, Nadine & O'Connell, Marguerite & Oleaga, Iñigo Arruga & Abraham, Laurent , 2024. "The path to the reformed EU fiscal framework: a monetary policy perspective," Occasional Paper Series 349, European Central Bank.
    11. Capraru, Bogdan & Georgescu, George & Sprincean, Nicu, 2020. "An evaluation of IFIs impact on EU countries budget deficits," Working Papers of Romania Fiscal Council 201101, Romania Fiscal Council.
    12. Hauptmeier, Sebastian & Leiner-Killinger, Nadine & Muggenthaler, Philip & Haroutunian, Stephan, 2022. "Post-COVID fiscal rules: a central bank perspective," Working Paper Series 2656, European Central Bank.
    13. Kuusi, Tero & Puonti, Päivi, 2021. "Keep It Simple, Not Stupid – How to Save the EU Fiscal Framework?," ETLA Reports 120, The Research Institute of the Finnish Economy.
    14. João Afonso Coelho, António Portugal Duarte, 2023. "The European fiscal framework: Counterfactual Analysis to its compliance in the hypothetical scenario without the Covid-19 pandemic," European Journal of Comparative Economics, Cattaneo University (LIUC), vol. 20(2), pages 265-298, December.
    15. Jan Priewe, 2021. "Reforming the Fiscal Rulebook for the Euro Area – and the Challenge of Old and New Public Debt," IMK Studies 72-2021, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.

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    More about this item

    Keywords

    Economic and Monetary Union (EMU); fiscal rules; Stability and Growth Pact (SGP);
    All these keywords.

    JEL classification:

    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • H6 - Public Economics - - National Budget, Deficit, and Debt

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