EU fiscal rules: we expect reforms but no paradigm shift

We expect important changes to the EU’s fiscal governance framework, but no paradigm shift. Specifically, green and digital public investments will receive special treatment; the debt anchor and pace of adjustment will better reflect new realities; and emphasis will shift to checking expenditure growth. Thus, a fiscal cliff in 2023, when the rules are set to kick back in, will be avoided.

What you will learn:

• There is consensus among economists that the existing rules are not fit for purpose.
• But even if certain public investments do receive special treatment, we don’t foresee a massive debt-funded public investment spree.
• Credible fiscal rules with broad compliance and enforcement are key in building trust among eurozone members and unlocking progress in other integration projects, such as completing the banking union, repurposing and making permanent the Recovery Fund, or a eurozone fiscal union.