EU: Will changes to the Stability and Growth Pact be enough?

The coming weeks will be decisive for the process of reforming European budget rules. As the European Commissioner for the Economy, Gentiloni, has stated, this is the time frame that separates us from the adoption, by the European Commission, of legislative proposals to reform the current rules.

The Commission intends, as we learn from the communication last November, to propose changes only to the Stability and Growth Pact at this stage, namely that set of regulations (and the 2011 directive) that implement the provisions of the Treaty on the Functioning of the European Union, particularly the deficit and debt parameters contained in the Treaty protocols.

In recent days, specific reflections from some of the most knowledgeable individuals on the subject have emerged. Notably, the proposals for specific amendments and clarifications by the Parliamentary Budget Office (PBO), the network of independent fiscal institutions of the EU (EUIFIS), of which the PBO is a part, and the Bank of Italy.

Beyond the criticism of the vague aspects of the Commission’s Communication, an issue that should be resolved with the issuance of legislative proposals, the interventions indicate, on one hand, the need to reduce the Commission’s discretion, which could be excessive, and on the other, to better protect the functions and independence of independent fiscal institutions.

On this topic, I have already expressed several times in favor of a greater role for such institutions, which can significantly contribute to increasing the national ownership of budgetary rules and give more responsibility to citizens, giving them more tools to evaluate and, therefore, reward or punish their governments based on the financial impact of their political choices.

But the most important aspect, unanimously highlighted by the mentioned proposals, is that of fiscal capacity. Everyone recognizes that this can fulfill a fundamental function in safeguarding the macroeconomic stability of the entire EU, particularly the eurozone, finally bridging the asymmetry between monetary policy, of a federal nature, and fiscal policy, based on the model of fiscal regulation, as political scientists like Sergio Fabbrini teach. It could also promote investments in European public goods, making the golden rule tool less necessary, which is more criticized compared to fiscal capacity for various technical and political reasons.

For this reason, I believe it is essential that the entire country, government, and opposition, fight in European forums to achieve this historic goal, overcoming the mistrust of states that stubbornly oppose change, because this is a great window of opportunity to change Europe, which, if closed in vain, would risk the continent’s future.

On the other hand, the war axe of some northern countries against fiscal capacity has been set aside in the face of the need to respond to the pandemic with the Recovery and Resilience Plan (financed precisely with debt issuance at the European level).

The reluctant ones have hurried to emphasize the exceptional nature of the choice, due to a dramatic and extraordinary phase. But isn’t war equally dramatic and extraordinary? And aren’t the challenges we will face, within global competition, of ecological and digital transition, and of industrial policy capable of defending our players and creating new ones, dramatic and crucial?