The Reform of the European Fiscal Rules: In Search of Mechanisms Ensuring Sustainable Debt Levels

Central to the recent European Commission's proposals for the reform of the current fiscal rules is the introduction of national medium-term fiscal structural plans. The proposed emphasis on compliance with country-specific net expenditure trajectories aimed at government debt sustainability is to be welcomed. However, several details of this expenditure path are either not clear or run the risk of political manipulation. What is more, maintaining the one-size fits all 3 % threshold for the budget balance undermines several of the acclaimed advantages of the proposed new governance system, including that it would be simpler and less pro-cyclical. Furthermore, enforcement under the proposed framework is also unlikely to be stronger than under the current framework. Last, but not least, the proposal does not discuss the need for an EU framework for debt restructuring.