Rethinking the EU’s Fiscal Framework
Proposed reforms of the European Union’s Stability and Growth Pact presuppose the desirability of fiscal discipline in a monetary union, but the arguments for this are weaker than they once were. Policymakers should instead focus on turning the EU’s new Recovery and Resilience Facility into a proper counter-cyclical policy tool.
MILAN – Soon after the COVID-19 pandemic hit in spring 2020, the European Union activated the Stability and Growth Pact’s general escape clause, thereby suspending the Union’s limits on member states’ fiscal deficits and government debt. The clause envisages an almost automatic return to the SGP’s rules once the crisis is over, but EU policymakers should chart a different course.