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Whither EU Fiscal Rulemaking?

Since fiscal discipline is essential for euro stability, any new governance framework must minimize the risk of cross-border negative spillovers, discourage free riding, and address moral hazard. Unfortunately, the European Commission’s new proposals fall far short of advancing any of these goals.

BRUSSELS – On November 9, 2022, the European Commission published a blueprint for reforming the European Union’s economic-governance framework. Among other things, the document envisions a more integrated approach to EU economic surveillance, strengthened national ownership, simplified rules for governing fiscal risks, and better enforcement of those rules. But the details of the proposal raise doubts about the feasibility of achieving these goals. Specifically, the fiscal component of the proposed framework leaves three fundamental questions unanswered.