ifo President Clemens Fuest Sees Need for Improvements in EU Debt Rules

The President of the ifo Institute, Clemens Fuest, sees a need for improvement in the European Commission’s plans for debt rules in the EU. “Reform should focus on fiscal discipline and member states’ national ownership. In the Commission’s current proposal, this is only partly the case,” Fuest says. Allowing more debt when states give greater weight to EU policy priorities in their budgets might conflict with the goal of sustainable fiscal policy, he explained in an essay in the new EconPol Forum.

Fuest takes a positive view of the proposal to automatically initiate proceedings against countries that do not comply with the debt rules. However, he is critical of the planned relaxation of debt and deficit rules (Maastricht criteria) for those countries whose spending is in line with the EU’s policy priorities.

“If European policymakers want to strengthen investment incentives, they could link debt-financed spending to net investment. All other government spending, such as social transfers, would have to be capped by corresponding revenues in the government budget. Exceptions should continue to be possible only in times of economic crisis,” says Florian Dorn, Director of EconPol Europe. He adds that it is important to adequately define what counts as investment. Currently, the European Commission’s reform proposal leaves too much room for circumventing the rules.

The EU’s Maastricht criteria allow member states no more than 3 percent in new government borrowing and total debt of no more than 60 percent of gross domestic product. On April 26, 2023, the European Commission presented a proposal to reform EU fiscal rules.

Questions can be directed to: Prof. Clemens Fuest, 0049 / 89 / 9224 1430, Fuest@ifo.de