Future is Blue
Unpacking the EU's new fiscal rules
Feb 6, 2024
Vinzenz Ziesemer, Director at the Institute voor Publieke Economie, and Raymond Torres, Funcas Europe Director, delve into the EU's newly minted fiscal rules. They discuss how these measures aim to be more flexible, yet raise concerns about their responsiveness to pressing geopolitical issues. The conversation also highlights the crucial balance between maintaining fiscal discipline and investing in green initiatives amid rising interest rates. Lastly, they tackle the uneven impact of these rules on different member states and the risks of mismanaging state aid.
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Quick takeaways
- The new EU fiscal rules offer more flexibility in financial management but may not sufficiently support essential green investments for sustainability.
- Concerns arise over economic disparities among EU member states as some may struggle to meet fiscal corrections while investing in crucial areas.
Deep dives
New Fiscal Framework Overview
The latest fiscal framework introduced in the European Union aims to provide a more sustainable approach to managing member states' finances compared to the previous system. Previously, countries were constrained by a 3% deficit norm, which often led to procyclical austerity measures during economic downturns, forcing cuts when they were most detrimental. The new rules allow member states to submit forward-looking plans for expenditure over several years, thus reducing the need for immediate interventions during economic fluctuations. However, the concern remains that despite this new flexibility, the original debt-to-GDP ratios are still legally binding, which may reinstate some of the old challenges.
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