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The New Fiscal Rules - another round of austerity for Europe?

Author

Listed:
  • Christoph Paetz

    (Macroeconomic Policy Institute (IMK))

  • Sebastian Watzka

    (Macroeconomic Policy Institute (IMK))

Abstract

This policy brief presents the new EU fiscal rules with a focus on its core element, the so-called debt-sustainability-analysis (DSA). Our results suggest first that the new rules will lead to substantial fiscal consolidation in the next years albeit less severe than the austerity measures during the euro crisis, second that the new rules are far less beneficial for public investment than previously thought, and third that relatively minor changes to the DSA assumptions on ageing costs and interest rates can have important consequences for fiscal adjustment needs. However, even if some of the assumptions underlying the DSA methodology were to be changed, the additional fiscal space would still fall drastically short of the massive public investment needs of the EU's green transition. We conclude by making the case for an EU-wide debt-financed investment fund.

Suggested Citation

  • Christoph Paetz & Sebastian Watzka, 2024. "The New Fiscal Rules - another round of austerity for Europe?," IMK Policy Brief 176-2024, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    • Handle: RePEc:imk:pbrief:176-2024
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    References listed on IDEAS

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    1. Olivier J Blanchard, 2019. "Public Debt: Fiscal and Welfare Costs in a Time of Low Interest Rates," Policy Briefs PB19-2, Peterson Institute for International Economics.
    2. Olivier Blanchard, 2019. "Public Debt and Low Interest Rates," American Economic Review, American Economic Association, vol. 109(4), pages 1197-1229, April.
    3. Bakker Age & Beetsma Roel & Buti Marco, 2024. "Investing in European Public Goods While Maintaining Fiscal Discipline at Home," Intereconomics: Review of European Economic Policy, Sciendo, vol. 59(2), pages 98-103, March.
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    Cited by:

    1. Sebastian Dullien & Katja Rietzler, 2025. "The Macroeconomic Effects of a Green European Public Investment Fund - Taking Climate Change into Account," IMK Policy Brief 197-2025, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    2. Krebs, Tom, 2025. "Eine Investitionsregel zur Reform der Schuldenbremse," Working Paper Forschungsförderung 363, Hans-Böckler-Stiftung, Düsseldorf.
    3. Fernandez-Perez, Adrián & Gómez-Puig, Marta & Sosvilla-Rivero, Simón, 2025. "Examining the transmission of credit and liquidity risks: A network analysis for EMU sovereign debt markets," The North American Journal of Economics and Finance, Elsevier, vol. 77(C).
    4. Katja Rietzler, 2024. "Nachtragshaushalt NRW 2024: Höchste Zeit für die Konjunkturbereinigung," IMK Policy Brief 179-2024, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    5. Sebastian Dullien & Alexander Herzog-Stein & Peter Hohlfeld & Katja Rietzler & Sabine Stephan & Thomas Theobald & Silke Tober & Sebastian Watzka, 2024. "Stark belastete deutsche Wirtschaft verharrt in Stagnation," IMK Report 193-2024, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    6. Heimberger Philipp & Welslau Lennard & Schütz Bernhard & Gechert Sebastian & Guarascio Dario & Zezza Francesco, 2024. "Debt Sustainability Analysis in Reformed EU Fiscal Rules: The Effect of Fiscal Consolidation on Growth and Public Debt Ratios," Intereconomics: Review of European Economic Policy, Sciendo, vol. 59(5), pages 276-283.
    7. Philipp Heimberger, 2025. "The new EU fiscal framework: Implications for public spending on the green and digital transition," wiiw Policy Notes 94, The Vienna Institute for International Economic Studies, wiiw.
    8. Sebastian Dullien & Alexander Herzog-Stein & Peter Hohlfeld & Katja Rietzler & Sabine Stephan & Thomas Theobald & Silke Tober & Sebastian Watzka, 2024. "Wirtschaftsflaute dauert an," IMK Report 192-2024, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.

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