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MNI BRIEF: New EU Fiscal Rules May Be Credit Negative - Scope

(MNI) Brussels

The EU’s new fiscal regime may prove credit negative, Scope Ratings says in a report out Monday, as it only partially meets the EU’s initial objective of creating a simple, flexible and credible framework better than the existing regime.

The replacement of the “structural deficit” as the main policy anchor with net primary expenditure is a positive development, Scope concedes, as it will reduce controversies around the unobservable “structural deficit” and the “output gap”. But flexibility, individual adjustment plans, and their possible extension will lead to uncertain outcomes, the report said.

“While they may incentivise growth-enhancing reforms and investments, which support sovereign ratings, they also give member states enhanced flexibility to postpone and deviate from necessary fiscal adjustments, which may prove credit negative,” Scope's Head of Sovereign and Public Sector Ratings Alvise Lennkh-Yunus said. “Credibility and effective compliance are unlikely to improve and might even weaken.” (see MNI: EU Excessive Debt Procedures Under New Rules-Officials)

MNI Brussels Bureau | david.thomas.ext@marketnews.com
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MNI Brussels Bureau | david.thomas.ext@marketnews.com
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