Thread by @Mij_Europe

2022 is a very important year for reform of EU fiscal rules. What's the latest thinking? 1/

.@PaoloGentiloni wants
broad consensus & political backing - so reform will be a 2-step process: 1) initial guidance for member states in April (indicating where rules are going so capitals can prep budgets for 2023); 2) final conclusions then after June's European Council 2/

The guidance in Apr will serve as a "testing phase" - a useful step for @EU_Commission to gauge reaction from EU capitals as final conclusions are drawn up for June. So Apr guidance will be the start of an "in-between" transitional fiscal regime. A bridge between the old & new 3/

EU leaders will then likely endorse conclusions in June to provide clarity about what fiscal rules should apply from 2023 when GEC ends. No legislative changes likely this year; this will be a "Commission communication" - an interpretative framework EU capitals note & apply 4/

Fr has EU presidency so should in theory be neutral, but @EmmanuelMacron will push reform, with support of Draghi & others. The balance they have to strike: support recovery, allowing investment for green transition while also showing an adjustment path for high debt countries 5/

I'm told that rationale of FT op-ed was to make the case to Northern Europe that fiscal space to support the recovery & for transition is good for growth & thus debt sustainability. Idea is to enhance EU growth potential, not just return to 2019 levels 6/

ft.com/content/ecbdd1…

Primarily by shielding public spending that is growth enhancing. Fiscal space for green inv & more gradual debt consolidation (than stipulated by 1/20) is priced in. Interestingly, I understand that basis for opening & closing Excessive Deficit Procedures is also being reviewed

While Gentiloni, Macron & Draghi would be in favour of a permanent fiscal capacity - & the costs of net-zero & high energy prices create the political context for this discussion - it is still very premature. The review of fiscal rules is about national budgets, not NextGen EU 8/

The first disbursements under the Recovery Fund - based on reforms - are only just starting (disbursements so far were based on submission of reform plans, not actual implementation). So to start debating a permanent capacity now would likely be seen as a provocation by North 9/

Another big issue for a permanent fiscal capacity will be "own resources". If @EU_Commission can't reimburse debt it's now issuing with new EU-level revenue streams & has to ask member states to increase their contributions to EU budget, NextGen EU will be seen as a failure 10/

€€€ from OCED deal on Pillar 2, carbon border adjustment mechanism, expansion of EU emissions trading scheme (if it happens) will help. But more revenues will be needed to pay back €750bn Commission is now borrowing

ENDS