Reforming Economic Governance in the Eurozone: Shifting Spending Instead of Expanding Debt Margins
Key Messages
- In view of the very high public debt ratios and rising inflation, expanding debt leeway in the Eurozone is the wrong way.
- What is needed is a modified handling of the existing rules, not a change in the rules themselves.
- Fiscal policy coordination should focus more on expenditure reallocations and thus on improving the quality, not the quan-tity of public spending.
In February 2020, the European Commission announced that it would present a plan for reforming the economic governance of the Eurozone, including the rules for public debt. The project was postponed by the outbreak of the corona pandemic, but now the reform is to come. There is a widespread demand to expand debt leeway, for example for climate protection spending. In view of the already very high national debt and rising inflation, this is the wrong way to go. Fiscal policy coordination should focus more on expenditure reallocations and thus on improving the quality, not the quantity of public spending. What is needed is a modified handling of the existing rules, not a change in the rules themselves.
Clemens Fuest: “Reforming Economic Governance in the Eurozone: Shifting Spending Instead of Expanding Debt Margins,” EconPol Policy Brief 42, June 2022.