The review to reform EU fiscal rules begins soon. 3 key points: 1/ Process brings risks; 2/ There's an emerging consensus on debt, not investments; 3/ COM is toying with completely overhauling governance - empowering members states to determine their own fiscal trajectories 1/
Process is key - & brings risks. Member states must submit Stability & Convergence Programs to Bxl by mid-Apr. For this they'll need an idea of what fiscal rules in 2023 will be. But we'll only have a new Govt in Berlin in.. Dec? Maybe Jan? That leaves Q1 next yr to do a deal 2/
Absent consensus, COM may be forced to issue a Communique - instead of concrete legislative proposals - pointing to what new rules will likely be. It's here when fiscal hawks (@VDombrovskis is key) will likely urge old rules & EDPs to apply - despite tightening they imply 3/
The substantive reform ideas are well known - see @pisaniferry @ojblanchard1 @AlvaroISLM @GuntramWolff. Within COM, there's an emerging consensus on easing 1/20 debt reduction rule; there's much less agreement on investments - what's excluded, who calculates/counts & decides 4/
Most surprisingly, some in @EU_Commission are thinking about upending how fiscal policy is governed in the Eurozone - moving to a more decentralised system which empowers member states to design their own fiscal adjustment path, with the Commission only serving as a referee 5/
The exemplar is Recovery Fund. The idea is: if you give EU capitals more ownership, they're more likely to deliver on their commitments. Hawks are sceptical: how, for eg, would you bake in commitments from future Govt's? The post-Draghi situation in Italy remains front of mind 6/
This is going to be a big political & policy debate for EU over the next year. But @PaoloGentiloni is keen - & right - to use momentum of Covid crisis to push for a structural overhaul of how EU thinks about & manages fiscal policy. It remains to be seen if he'll succeed
ENDS
ENDS
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