MNI INTERVIEW: EU To Make Fiscal Rules More Flexible:Bordignon

By Silvia Marchetti

     ROME(MNI) - The European Commission is likely to adopt proposals to exclude

public investment spending from member states' deficit calculations as it

carries out a review of fiscal rules under new leadership, European Fiscal Board

member Massimo Bordignon told MNI.

     In its October annual report, the EFB, an independent advisory body to

Commission, also called for a "radical simplification" of European debt rules,

together with country-specific targets and a strengthening of the oversight of

compliance.

     "There's widespread dissatisfaction with overly complex fiscal rules and an

overlapping of budget calculation methods that must be overcome to implement a

more pro-investment fiscal policy," Bordignon said in an interview, adding that

he was confident of the chances for success of an EFB proposal for a revised

version of the "Golden Rule" committing governments to achieve budget balance

over the course of the economic cycle.

     The EU's new commission for economic and financial affairs, Paolo

Gentiloni, said last month that the EU should update its framework on budget

deficits and debt, in order to ensure that countries with fiscal space can use

it at a time when the European economy runs the risk of a prolonged slowdown and

the European Central Bank has said fiscal policy must take a greater share of

stimulating demand.

     "The key problem today is relaunching investments in Europe. The new

commission has taken a different and more open approach to boosting both public

and private investment, which makes this time ripe for change," Bordignon said.

     "There is a high chance that two of our key proposals might bear fruit --

simpler, clearer rules and new ways to calculate national budgets that could see

deficits net of investments that impact on long-term growth potential,"

Bordignon told MNI.

     Another option might be for governments to be able to transfer key

investment spending to a centralised European fund, he added.

     --PROPOSALS "HAVE A CHANCE"

     "Countries that make such investments should not be penalised but supported

also via the possibility of transferring certain current expenditures into

capital expenditures that have a long-term impact on GDP. Given the changed

scenario, I believe such proposals have a chance of being taken on."

     The EFB also called last year for simplified debt rules, but its proposal

was not adopted. EFB Chair Niels Thygesen told MNI in early October that German

opposition to making rules on debt more flexible was easing as its own economy

weakened.

     "Quite likely there will be a solution vis-a-vis simpler fiscal rules and

new steps will be taken with regard to pro-growth budget evaluations, in

particular towards different, supportive treatment of new ways to calculate

deficit spending net of long-term investments in key environmental projects and

green technology," Bordognon said.

     The EBF has also called for the budgetary planning to be monitored over

three-year, and not one-year periods, and for a separation between the body

which monitors compliance with fiscal rules and that which decides on sanctions

- functions both currently in the hands of the European Commission.

     Currently the EU Council can only block fiscal sanctions proposed by the

Commission with the vote of 70% of member states.

     "The Commission acts as a political body and at the end of the day takes

all the decisions, while it is the Council that should have a greater political

say in applying sanctions" argued Bordignon.

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

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