We need a European Stability and Growth Pact fit for uncertain times
The EU’s new fiscal rules should ensure fiscal responsibility without dogmas and allow for enough flexibility to enable investments, argue Stéphane Séjourné, Stéphanie Yon-Courtin, Eva Poptcheva, and Catharina Rinzema.
When it comes to EU budgetary debates, the 2020s do not have to be the 2010s all over again. As Europeans, we are not bound to live again the frugal vs. spenders rift as much as the factually untrue and counterproductive north vs. south narrative. There is a middle path between blind austerity and unsustainable profligacy.
Proof that divisions are not insurmountable is the agreement found between members of our European parliamentary group, Renew Europe: home to 25 nationalities and the political family of President Macron and Prime Minister Rutte. Of course, we have our differences, what political family doesn’t, but these should not be exaggerated. The consensus that the rules should be revised is itself a milestone of EU political discourse.
Liberals and democrats in the European Parliament propose a path for the reform of the European Stability and Growth Pact. This path lies on 3 pillars: responsibility, flexibility and clarity.
Less debt and deficits are still the keys to sustaining our social systems and feeding trust in our common currency. The 60% debt and 3% deficit limits are good benchmarks, but they should not be conceived as a dogma of faith.
Of course, there needs to be effective debt reduction over time, but they are long-term goals and consequently, the adjustment path to reach those objectives can only be on a multi-year benchmark.
Moreover, the logic of a well-managed fiscal policy calls for spending and investment in times of economic downturn to stimulate growth, while taking advantage of good times to consolidate public finances and thus foster debt sustainability.
That is why, we need to complete those objectives with others which will encourage member states to achieve the green and digital transitions as well as build our strategic autonomy. Responsibility is not just only how much you spend but how and why you spend it.
This pillar is essential for two reasons. Today everyone in the European Union has realised that one-size-fits-all policies of spending restraint and debt reduction, are simply undoable without taking into account the starting point and national realities of each country. The current situation requires greater flexibility for countries on their path to fiscal consolidation.
The second reason is that this flexibility must serve as a tool to boost investments and structural reforms. A flexibility used, therefore, responsibly and smartly to make progress in strategic areas such as energy, defence, technology, education and the labour market, as well as to accelerate the green and digital transitions.
To this end, beyond the oversight role of the Commission and independent national authorities, we call for better economic governance with greater democratic scrutiny, with the European Parliament playing a stronger role. This constant dialogue, already utilised in the European recovery plan framework, can build the mutual trust, that was missing in the 2010s.
Eventually, everyone has to recognise that the current framework is too complex and often unrealistic. Wishful thinking helps no one to achieve debt reduction and the sanction mechanism appeared totally defunct.
These rules must not only be clear, transparent and balanced in order to promote market confidence in the economic soundness of the Union, but also to ensure close coordination and trust between the 27 member states that make up the Union. We propose to put realistic and transparent criteria, accompanied by an efficient and enforceable system of sanctions in the event of non-compliance.
Reading our three-pronged approach, some might think that we are skipping the most controversial issues which are the details of the new framework. On this, our group is clear: as long as you do not agree on principles for the reform, it is useless to discuss the details, which are often ensnared in symbol politics and culture wars from past decades.
We are also calling on every EU stakeholder to show as much willingness to advance this reform as we are. The 2024 European elections are not an excuse not to engage in this vital debate for European economic governance. Considering their current positions, this strategy of avoidance from our adversary is understandable.
The Social Democrats might be ill-at-ease to reveal the fact that their ideological grand-standing does not even represent the policies of their own national leaders and the European People’s Party’s reputation of sound economic politics won’t pass the test of a close evaluation of their current flag-bearers. Understandable yet irresponsible.
The European Union is going through turbulent times marked by imposing challenges: the pandemic and its far-reaching consequences, geopolitical tension stemming from the war in Ukraine, China’s expansionism, the energy, food and supply crisis, runaway inflation, hostile financial conditions… all these factors have created a difficult macroeconomic environment of great uncertainty across Europe, with enormous economic and social consequences for households, businesses and industries.
The potential 2024 reactivation of the old fiscal rules urges us, out of responsibility and necessity, to provide ourselves with a new economic framework of governance that is modernised and truly adapted to the uncertain times we are facing. There is no other option. Let’s make it happen.