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Europe's New Fiscal Rules


  • Sebastian Barnes


  • David Davidsson

    (Ministry of Finance)

  • Łukasz Rawdanowicz



Europe is putting in place a new system of fiscal rules following the euro area sovereign debt crisis and decades of rising government to debt-to-GDP ratios. These include the so-called “six pack” to upgrade the Stability and Growth Pact to a new Treaty incorporating the “fiscal compact”. Much of the discussion about the new rules has been procedural or theoretical. This paper shows what the rules will mean in practice under a realistic mediumterm scenario developed by the OECD. In the short term, fiscal consolidation will largely be driven by the current wave of Excessive Deficit Procedures. Only once these commitments are fulfilled will the new system of rules come into action. Although the rules are complex, the central pillar of the new fiscal rules will be the requirement to balance budgets in structural terms. These imply a tight fiscal stance over the coming years for many European countries by comparison with the performance achieved in past decades: almost all countries will have to be as disciplined as the few countries that managed to make meaningful progress in tackling high debt levels in the past. A further tightening of budgetary Medium-Term Objectives is likely in 2012, which will in many cases make the required fiscal stance even tighter. Over the very long term, the rules imply very low levels of debt. The requirements can thus not be considered to be a permanent approach. The methodology to calculate the structural balance has a number of weaknesses and discretion will be needed in implementing the rules. Les nouvelles règles budgétaires européennes En réaction à la crise de la dette souveraine de la zone euro et après des décennies de progression du taux d’endettement public par rapport au PIB, l’UE met en place un nouvel ensemble de règles budgétaires. Parmi ces nouvelles règles figure le train de six mesures (« six pack ») destinées à faire évoluer le Pacte de Stabilité et de Croissance vers un nouveau Traité intégrant le « Pacte budgétaire ». Le débat sur ces nouvelles règles a essentiellement porté sur des questions procédurales ou théoriques. Ce document montre ce qu’impliquent concrètement ces nouvelles règles, dans le cadre d’un scénario de moyen terme réaliste élaboré par l’OCDE. Dans un premier temps, l’assainissement budgétaire sera essentiellement motivé par la vague actuelle de procédures pour déficits excessifs. Ce n’est qu’à l’issue de ces procédures que les nouvelles règles entreront en vigueur. Le point d’ancrage de ces règles complexes réside dans l’exigence d’un équilibre budgétaire structurel. Bon nombre de pays européens devront donc, au cours des prochaines années, adopter une politique budgétaire plus rigoureuse que lors des décennies précédentes : la quasi-totalité des pays devront se montrer aussi disciplinés que ceux, peu nombreux, ayant réussi par le passé à réduire significativement leur dette publique. Un nouveau durcissement des objectifs budgétaires à moyen terme est probable en 2012, ce qui dans de nombreux cas donnera lieu à des politiques budgétaires encore plus rigoureuses. À très long terme, les règles impliquent un très faible niveau d’endettement. Les conditions imposées ne pourront donc pas être considérées comme permanentes. La méthodologie mise en oeuvre pour calculer le solde structurel présente certaines faiblesses et il faudra faire preuve de discernement dans la mise en oeuvre des règles budgétaires.

Suggested Citation

  • Sebastian Barnes & David Davidsson & Łukasz Rawdanowicz, 2012. "Europe's New Fiscal Rules," OECD Economics Department Working Papers 972, OECD Publishing.
  • Handle: RePEc:oec:ecoaaa:972-en

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    Cited by:

    1. Łukasz Rawdanowicz, 2014. "Choosing the pace of fiscal consolidation," OECD Journal: Economic Studies, OECD Publishing, vol. 2013(1), pages 91-119.
    2. World Bank, 2013. "World Development Report 2014
      [Informe sobre el desarrollo mundial 2014, Riesgo y oportunidad : la administración del riesgo como instrumento de desarrollo - Panorama general]
      ," World Bank Publications, The World Bank, number 16092.
    3. Reicher, Claire, 2014. "Systematic fiscal policy and macroeconomic performance: A critical overview of the literature," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 8, pages 1-37.
    4. Kuusi, Tero, 2014. "Consolidation under the Europe’s New Fiscal Rules: Analyzing the Implied Minimum Fiscal Effort," ETLA Working Papers 23, The Research Institute of the Finnish Economy.
    5. Adrian Daniel STAN & Brindusa Nicoleta PINCU, 2015. "Will The Eu`S Boat Float In Murky Post-Crisis Waters? An Assessment Of Eu`S Economic And Financial Agenda," CES Working Papers, Centre for European Studies, Alexandru Ioan Cuza University, vol. 7(3), pages 774-784, September.
    6. Ivan Ilkov, 2014. "Fiscal problems in the Eurozone," Economic Thought journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 3, pages 81-104.
    7. Plödt, Martin & Reicher, Claire, 2014. "Primary surplus and debt projections based on estimated fiscal reaction functions for euro area countries," Kiel Working Papers 1900, Kiel Institute for the World Economy (IfW).
    8. Lennart Erixon, 2015. "Can fiscal austerity be expansionary in present-day Europe? The lessons from Sweden," Review of Keynesian Economics, Edward Elgar Publishing, vol. 3(4), pages 567—601-5, October.
    9. Deborah Mabbett & Waltraud Schelkle, 2014. "Searching under the lamp-post: the evolution of fiscal surveillance," LEQS – LSE 'Europe in Question' Discussion Paper Series 75, European Institute, LSE.
    10. Reicher, Claire A., 2014. "Fiscal targeting rules and macroeconomic stability under distortionary taxation," Kiel Working Papers 1968, Kiel Institute for the World Economy (IfW).

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    JEL classification:

    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H6 - Public Economics - - National Budget, Deficit, and Debt
    • H8 - Public Economics - - Miscellaneous Issues

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