This document discusses European fiscal governance. It outlines the mandates and independence of national independent fiscal institutions. It also describes the European Fiscal Board and how national fiscal rules are analyzed using regression analysis. The document notes that while European fiscal tools are not fully effective, the "traffic light" preventive arm of the Stability and Growth Pact works reasonably well. Member states stretch the margins of fiscal rules but avoid ending up in the red category. The rules have become complex over time, reducing ownership by national policymakers. Simplification of the structural balance indicator and expenditure rules have been proposed. The future of the Stability and Growth Pact remains unclear, with tensions between centralization and decentralization of fiscal governance.

1. European Fiscal Governance
Frans K.M. van Nispen
Visiting Fellow
1

2. 2
European Fiscal Governance

3. 3
National IFIs

4. Mandate:
–Fiscal Rules
–Fiscal Stance
Independency
4
European Fiscal Board

5. 5
Regression Analysis

6. 6
National Fiscal Governance
0
0,5
1
1,5
2
2,5
3
FR + LC + FC + iFC + MTBF
Basis value Added value

7. ‘The tools of European fiscal governance are
not really effective, but the ‘traffic light’ used
in the preventive arm of the SGP works. The
member states stretch the margins, but at the
same time do their utmost best not to end-up in
the red category’ [Interview January 2017]*.
* with the help of an Excel file on a laptop
7
Traffic Light

8. 8
Traffic Light

9. –Severe economic downturn EU or EA
–Unusual events outside the control of the
MS
–Investment clause
–Structural reform clause, incl. pension
reform
> Significant ≠ Significant
9
Flexible Interpretation Rules

10. ‘The European fiscal framework has become
rather complex, due to continuous fine-tuning
of the rules … This has in turn contributed to a
lack of ownership by national policymakers’
[Presidency Note, April 23, 2016].
10
Simplification Rules

11. ‘The structural balance is an anchor in our
system, deeply embedded in the legal
framework … However, the structural balance
is unobservable, volatile and subject to major
revisions, even ex-post … As a result, Member
States are held accountable for an indicator
which to a crucial extent lies beyond their
control’ [Presidency Note, April 23, 2016].
11
Simplification Rules

12. – Expenditure aggregate: in nominal instead
of real terms
– Expenditure benchmark: potential growth
plus inflation target of 2 percent
– Debt feedback mechanism
Claeys, Darvas & Leandro 2016
12
Refined Expenditure Rule

13. –Goal-attainment
–Sustainability
–Effectiveness
–Denominator effect
13
Fiscal Consolidation?

14. Centralization:
–Five Presidents Report
–White Paper on the Future of Europe
Decentralization:
–Flexible interpretation of fiscal rules
–Simplification of fiscal rules
14
SGP: Quo vadis?

15. Yogi Berra:
‘If you come to a fork in the road
take it!’
15
Conclusion