The Commission wants lower debt ratios in the member countries.
(Photo: dpa)
In November, the EU Commission presented its proposals for a reform of the EU budget rules. In a joint statement, the German and French finance ministers accepted the Commission paper as a basis for negotiations. A critical examination of the topic is important: new principles for EU supervision of the financial policies of the member states are long overdue.
The Commission’s proposal focuses on reducing public debt in relation to economic output. To ensure lower debt ratios, the Commission would conduct a forward-looking debt sustainability analysis for each EU member state.
For countries whose public debt is classified as very or moderately problematic, limits for public spending in the following years would be set on this basis. Unless extraordinary events occur, governments should not be able to change the spending limits negotiated with the Commission for at least four years.
If a country with what the Commission has identified as a significant debt problem fails to meet these limits, the proposal would make it mandatory to initiate an excessive deficit procedure. For all other countries not complying with the spending rule, the Commission would consider initiating an excessive deficit procedure. This discretion carries a risk of unequal treatment.
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According to the Commission’s proposal, member states could commit to investments and reforms in order to spread the plan over time. However, it is unclear what criteria the Commission would use to distinguish between good and bad investments and reforms.
Philipp Heimberger is an economist at the Vienna Institute for International Economic Studies (WIIW).
>> Read here: Commentary on the EU debt rules: 90 is the new 60 – Brussels capitulates to the sad reality
There is a risk of a reform that does not give national governments sufficient leeway to make the necessary climate policy investments in the conversion of energy and transport systems.
European Parliament must be involved
The Commission would gain a lot of power with a reform according to her proposals. Accordingly, you have to watch her closely.
Analysis of future debt sustainability depends on growth and interest rate assumptions based on expectations of European Central Bank and EU economic policy decisions. If the assumptions change, this leads to large deviations in the forecast debt developments and thus in the spending leeway of individual member states.
Key assumptions underlying the Commission’s analyzes of debt sustainability thus include political assessments; they should definitely be controlled by the European Parliament. National parliaments should have to approve the plans negotiated by the government with the Commission in order to strengthen democratic legitimacy.
More: What the new EU debt rules look like and what concerns there are