MNI: Push For Eurozone Fiscal Stance Role In Bloc's Debt Rules

Southern EU countries are pushing for the bloc to take account of the eurozone’s aggregate fiscal stance as it administers its borrowing rules, whose reform is now under discussion, a paper prepared ahead of Monday’s Eurogroup meeting of finance ministers in Brussels and seen by MNI shows.

The working paper asks whether consideration of the aggregate fiscal stance could play a role in a reformed economic governance framework to strengthen policy coordination across the euro area. While the aggregate stance is not an officially-recognised concept, during the Covid crisis it gained importance for the Eurogroup as all countries agreed that fiscal policy had to be relaxed.

“Technically, [the eurozone fiscal balance] doesn’t exist in legislation – it’s something quite new, but it’s becoming increasingly part of the debate and some countries feel it should become more prominent, but others have doubts,” an official who has been following the talks on reforming borrowing rules in the Stability and Growth Pact told MNI.

“The idea is that some countries should not overdo consolidation if they have fiscal space when others are having to tighten,” the official said.

NORTH-SOUTH DIVIDE

German and Dutch fiscal policies were criticised in recent years for being overly restrictive at a time when high-debt states, such as Italy and Greece, were struggling to grow in order to help reduce debts.

“The question is whether there should be some top-down reasoning – what is the contribution of national budgets to the euro area fiscal stance and should this be considered by countries when they draw up their budgets?” the official said.

Until now, EU fiscal surveillance has focused solely on national budgets. Northern countries like Germany and The Netherlands remain opposed to an expanded role for the aggregate fiscal stance and officials said the idea is unlikely to be formalised in any legal texts which emerge from the talks on fiscal rules.

“It’s more a question of whether it gets more prominence in the debate in the EU’s annual eurozone fiscal policy recommendations and also its country-specific policy recommendations,” said another source.

Some countries could also seek to link the euro fiscal balance debate to the EU’s macroeconomic imbalances procedure, which is focused on excessive current account deficits or surpluses.

Sources say that the discussion on the fiscal stance could also have a bearing on how far countries are willing to go to facilitate increased public investment for green and digital transitions, something which is being aggressively pursued by France and Italy.