Overview of various reform proposals (selected proposals from recent years)

Feld et al. (2018)

Introduce Nominal Expenditure Growth Rule (growth ceiling for annual adjusted nominal expenditure growth)

Structural deficit rule for the medium-term target through a multi-purpose adjustment account (“memory” in the fiscal rule to achieve budget close to balance over the business cycle)

Pre-specified debt ratio as its long-term limit achieved with a debt-correction factor (“memory” in the fiscal rule to compensate for previous excessive spending)

Darvas, Martin and Ragot (2018)

Nominal Expenditure Growth Rule for the medium-term, consistent with a given debt-target

No compensation for previous excessive spending

Discretion on the type of expenditure

National Fiscal Councils decide on the annual target for the expenditure ceiling

Debt-rule based on a medium-term (e.g. 5 years-ahead) country specific target of reduction on the debt-to-GDP target, proposed by the government

Constâncio (2020)

Revision of the Stability and Growth Pact towards an expenditure growth rule (without annual progression towards the long-term target of 60%), but retaining the 3% limit for nominal deficit and abandoning targets for the structural balance.

Annual target for expenditure growth should depend on medium-term projection of nominal potential growth and a judgement on the convergence towards long-term debt ratio

National Fiscal Councils prepare projections for potential growth over the medium term

Ubide (2019)

Introduce a Golden Rule: public investment should be financed with debt

A PAYGO rule for current expenditures: increases in current spending or tax cuts to be paid for on a five-year forward basis

Independent fiscal council must evaluate fiscal proposals before adoption

Mandatory annual spending review, performed by independent national fiscal council

European Fiscal Board (2019)

Simple Long-Term Debt Target

Simple Rule for Net Spending Growth

Differentiate adjustment rates for public debt reduction between countries

Giavazzi, Guerrieri, Lorenzoni and Weymuller (2021)

A two-pillar proposal to revise existing fiscal rules as well as introducing a new European Debt Agency to absorb part of the pandemic-related debt

Fiscal rules adjusted to limit the maximum growth rate of government primary spending

Fiscal adjustment should be set as an annual path to reduce debt, where debt is split into a part that us reduced faster and debt that can be reduced at a slower pace (COVID-19 debt and debt for EU priorities such as the Green transition)

Move part of national debt to a newly created European Debt Management Agency, with the aim of reducing debt costs for the whole Union and helping the operations of the ECB in debt markets

Francová, Hitaj, Goossen, Kraemer, Lenarčič and Palaiodimos (2021)

A two-pillar approach that utilises a 3% fiscal deficit ceiling and a 100% general government debt reference value that incorporates an expenditure rule

Expenditure ceilings that track trend growth would replace existing medium-term objectives expressed in structural balance terms.

Government expenditure growth should not be higher than the potential or trend growth rate

Martin, Pisani-Ferry and Ragot (2021)

Remove the uniform numerical thresholds for the debt (60% of GDP) and the deficit (3% of GDP)

Each country sets a medium-term debt target based on an assessment by the domestic IFIs and then endorsed by the EU

After a debt target has been set, an expenditure rule will guide the path for primary nominal expenditures towards this debt target.

Blanchard, Leandro and Zettelmeyer 2021

Do not use fiscal rules and deficit and debt thresholds – instead introduce country-specific debt sustainability analysis (DSA), a form of standard for different countries and accompanying debt reduction plans tailored to each Member State

The EU economy was on the road to recovery in 2021, but continued to be shaped by high uncertainty about the further development of the COVID-19 pandemic. Key to the economic recovery was expansionary monetary and fiscal policy in the EU and euro area, which was characterised by high inflation rates toward the end of 2021. This paper discusses three main themes of EU economic policy in 2021-22: the monetary policy strategy review, the future of fiscal rules and the implementation of the NextGenerationEU instrument. The recently adjusted monetary policy strategies of the European Central Bank as well as the Federal Reserve tolerate higher inflation rates in the short term, but remain oriented toward the 2 percent inflation target in the medium term. Selected proposals for reforming EU fiscal rules take as their starting point the significant increase in member countries' indebtedness while pointing to the secular reduction in equilibrium interest rates that reduces the debt burden. Finally, the paper discusses the Recovery and Resilience Facility (RRF), the centerpiece of NextGenerationEU. The RRF is already in the implementation phase and is expected to lead to important investments and reforms in the coming years.