This document discusses independent fiscal institutions (IFIs) in the EU and Spain. It outlines two systems of IFIs - the Anglo-Saxon model and European model. National IFIs aim to increase transparency, discipline, and sustainability of public finances. The AIReF was created in Spain in 2013 to oversee budget stability. It monitors Spain's fiscal targets and evaluates compliance. Recent reports call for strengthening IFI roles, including establishing an Advisory European Fiscal Board to complement existing national fiscal councils.

1. The IFIs The case of Spain (AIReF) Challenges for the European IFIs
Independent Fiscal Institutions in the EU
Round table: What type of Fiscal Union?
Jordi Caballé
Universitat Autònoma de Barcelona
MOVE, Barcelona GSE
ADEMU - cambridge
October 8th, 2015
IFI’s in the EU ADEMU - cambridge

2. The IFIs The case of Spain (AIReF) Challenges for the European IFIs
Introduction
I The creation of Independent Fiscal Institutions (IFIs) to
oversee the sustainability of public …nances is a practise that
is becoming more and more common around the world as they
are generating bene…cial e¤ects for public …nance
sustainability, growth, and wellbeing.
I These organizations were …rst established in the middle of the
20th century. The Netherlands created the …rst IFI in 1947,
which led to other experiences just a few years later: Denmark
and Germany and, sometime later, others followed suit: the
United States (Congressional Budget O¢ ce, 1975), Belgium,
Austria, Korea, Sweeden, etc.
IFI’s in the EU ADEMU - cambridge

3. The IFIs The case of Spain (AIReF) Challenges for the European IFIs
Two systems
I Anglo-saxon system of IFIs (US, Canada, Netherlands):
I The IFIs set benchmarks for the …scal debate.
I Positive analysis (macro forecasts, cost-bene…t analysis,
evaluation of electoral programs).
I Rely more on market discipline than on rules.
I European system of IFI’s (created after the public debt crisis)
inspired in the German system:
I They rely on numerical …scal rules: they are simple, politically
acceptable in an heterogenous context, and enforce stronger
discipline in the Eurozone (no free-riders).
IFI’s in the EU ADEMU - cambridge

4. The IFIs The case of Spain (AIReF) Challenges for the European IFIs
The role of national IFIs (I)
I The national IFI’s provide proximity (information and
institutional knowledge), exclusive focus on sustainability,
local communication on the bene…ts of sustainability to
political parties and public opinion, and acceptability at the
national level.
I As of 2008, and following the economic and …nancial crisis,
the need to guarantee public budget stability became
widespread and the creation of independent institutions
contributed to this aim (Hungary, Slovenia, Romania, UK,
Slovakia, Ireland, Portugal, France, Spain, Italy).
IFI’s in the EU ADEMU - cambridge

5. The IFIs The case of Spain (AIReF) Challenges for the European IFIs
The role of national IFIs (II)
I Thus, there are currently more than 80 countries, including
Spain, that have set up these authorities for the primary
purpose of ensuring public …nance sustainability. In order to
reach this objective, their operation (which is reinforced if
pursuant to …scal regulations) provides:
1. Transparency. They facilitate the publication and
transmission of data as well as the identi…cation of possible
biases in …scal and macroeconomic projections.
2. Discipline. They provide an independent source of discipline,
which is not exposed to the pressure of interest groups, and
are committed to medium-term …nancial targets which are
free of any compulsion politicians may feel in view of
upcoming elections.
IFI’s in the EU ADEMU - cambridge

6. The IFIs The case of Spain (AIReF) Challenges for the European IFIs
EU legal framework
I European directive (2011/85/EU): all countries (except UK)
must have budget rules to meet the EU …scal obligations (art.
5) and have to check the ful…lment of these obligations
through reliable and independent analyses undertaken by
independent institutions.
I Fiscal Compact.
I Regulation (473/2013): The IFIs make macro forecasts (art.
4.4) and control the ful…lment of rules (art. 5).
IFI’s in the EU ADEMU - cambridge

7. The IFIs The case of Spain (AIReF) Challenges for the European IFIs
Di¤erent Con…gurations (I)
Austrian Fiscal Advisory Council
Cyprus Fiscal Council
DanishEconomic Council
Estonian Fiscal Council
National Audit O¢ ce,Finland
Haut Conseil des Finances Publiques, France
Independent Advisory Board to the Stability Council, Germany
Parliamentary Budget O¢ ce, Greece
Hungarian Fiscal Council
Irish Fiscal Advisory Council
IFI’s in the EU ADEMU - cambridge

8. The IFIs The case of Spain (AIReF) Challenges for the European IFIs
Di¤erent Con…gurations (II)
Parliamentary Budget O¢ ce, Italy
Latvian Fiscal Discipline Council
Lithuanian National Audit O¢ ce
Conseil National des Finances Publiques, Luxembourg
Malta Fiscal Advisory Council
CPB Netherlands Bureau for Economic Policy Analysis
Portuguese Public Finance Council
Council for Budget Responsibility, Slovakia
Independent Authority for Fiscal Responsibility (AIReF), Spain
Swedish Fiscal Council
O¢ ce for Budget Responsibility, UK
IFI’s in the EU ADEMU - cambridge

9. The IFIs The case of Spain (AIReF) Challenges for the European IFIs
Spain
I The purpose of the Independent Authority for Fiscal
Responsibility (AIReF, as it is known the IFI in Spanish) is to
oversee the sustainability of public …nances as a means for
ensuring economic growth and the wellbeing of Spanish
society in the medium and long-term.
I The AIReF is created in 2013 as a consequence of the lack of
credibility of Spanish …nances and the rescue of the banking
sector.
I Its mission is to guarantee e¤ective compliance by Public
Administrations of the budget stability principle set forth in
article 135 of the Spanish Constitution (modi…ed in 2011)
through ongoing monitoring of the budget cycle and public
debt.
IFI’s in the EU ADEMU - cambridge

10. The IFIs The case of Spain (AIReF) Challenges for the European IFIs
Instruments
I Macro projections, ex-ante assessment of the risk of deviation,
ex-post assessment of the outcomes, analysis of sustainability,
and analysis of budget transparency.
I But NOT cost-bene…t analysis of …scal measures NOR
analysis of the impact of economic policy on long-run growth
and employment.
I Main instrument: reports (on macro forecasts, multi-year
stability programs, budget targets, correction measures,
pensions sustainability factor), opinions and analyses.
I The administration should ADOPT the recommendations in
the reports OR EXPLAIN why it does not adopt them.
IFI’s in the EU ADEMU - cambridge

11. The IFIs The case of Spain (AIReF) Challenges for the European IFIs
Fiscal rules
I Fiscal rules in Spain are more stringent than in the UE (Ley
Orgánica de Estabilidad Presupuestaria y Sostenibilidad
Financiera de las Administraciones Públicas, 2012):
Spain UE
Medium-run target Structural de…cit: 0% Structural/nominal de…cit: 0.5% / 3%
Upper bound Public Debt 60% of GDP 60% of GDP
Public Debt convergence Reached in 2020. Public debt excess / 20
De…cit convergence Reduction per year: 0.8% of struct.de…cit Reduction per year: 0.5% of struct. de…cit
Public spending rule Public spending growth < GDP growth -
Social Security Sustainability factor -
IFI’s in the EU ADEMU - cambridge

12. The IFIs The case of Spain (AIReF) Challenges for the European IFIs
Targets
I Targets (de…cit, debt) from the EU to the Spanish
Government
I Targets from the Spanish Government to:
1. Central Administration
2. Regional governments (with horizontal distribution of targets).
3. Local Administration (Municipalities)
4. Social Security
IFI’s in the EU ADEMU - cambridge

13. The IFIs The case of Spain (AIReF) Challenges for the European IFIs
Internal rules (I)
I Independence:
I AIReF operates with complete organizational and functional
independence in order to carry out its purpose.
I Neither the President nor the members of its governing bodies
or anyone else on the sta¤ of AIReF may request or take
instructions from any public or private entity.
I Transparency:
I AIReF sees transparency as a commitment to provide citizens
with all the relevant information on its reports, opinions and
studies as well as on the fundamentals thereof in an open,
clear and timely manner.
I The institution will make public the methodology and criteria
underpinning its reports, opinions and studies in collaboration
with the various Public Administrations and international
organizations.
IFI’s in the EU ADEMU - cambridge

14. The IFIs The case of Spain (AIReF) Challenges for the European IFIs
Internal rules (II)
I Accountability
I In addition to the President reporting at least once a year to
Parliament, attendance at other parliamentary hearings is also
provided for as part of a communication policy that reinforces
this accountability in an open and continuous manner.
I AIReF shall be subject to regular external evaluation not only
of its institutional reports but also of its own governance and
organic structure and even its mandate. Its accounts shall also
be subject to review by the Government Comptroller’s O¢ ce
(IGAE) and the Spanish Court of Auditors.
IFI’s in the EU ADEMU - cambridge

15. The IFIs The case of Spain (AIReF) Challenges for the European IFIs
The Five Presidents’report and the IFI’s (I)
I "Completing Europe’s Economic and Monetary Union"
by Jean-Claude Juncker, Donald Tusk, Jeroen Dijsselbloem,
Mario Draghi and Martin Schulz (June 2015).
I Every Member State must stick to the rules, or the credibility
of this framework is at risk.
I The current governance framework should be strengthened
through the creation of an Advisory European Fiscal Board
(AEFB).
I This new advisory entity would coordinate and complement
the national …scal councils that have been set up in the
context of the EU Directive on budgetary frameworks.
IFI’s in the EU ADEMU - cambridge

16. The IFIs The case of Spain (AIReF) Challenges for the European IFIs
The Five Presidents’report and the IFI’s (II)
I The AEFB would provide a public and independent
assessment, at European level, of how budgets –and their
execution –perform against the economic objectives and
recommendations set out in the EU …scal governance
framework.
I Such a European Fiscal Board should lead to better
compliance with the common …scal rules, a more informed
public debate, and stronger coordination of national …scal
policies.
IFI’s in the EU ADEMU - cambridge

17. The IFIs The case of Spain (AIReF) Challenges for the European IFIs
Advisory European Fiscal Board (I)
I Annex 3 on Guiding Principles of the Advisory European
Fiscal Board (AEFB).
I It should coordinate the network of national …scal councils
and conform to the same standard of independence.
I It should advise, not implement policy. Enforcing the rules
should remain the task of the European Commission, which
should be able to deviate from the views of the European
Fiscal Board provided that it has justi…able reasons and
explains them.
IFI’s in the EU ADEMU - cambridge

18. The IFIs The case of Spain (AIReF) Challenges for the European IFIs
Advisory European Fiscal Board (II)
I It should form an economic, rather than a legal, judgement on
the appropriate …scal stance, both at national and euro area
levels, against the background of EU …scal rules. This should
be done on the basis of the rules set in the Stability and
Growth Pact (SGP).
I It should be able to issue opinions when it considers it
necessary, including in particular in connection with the
assessment of Stability Programmes and presentation of the
annual Draft Budgetary Plans and the execution of national
budgets.
I It should provide an ex post evaluation of how the governance
framework was implemented
IFI’s in the EU ADEMU - cambridge

19. The IFIs The case of Spain (AIReF) Challenges for the European IFIs
Agreement of EU IFI’s (I)
I Main concerns:
I Independence of the AEFB (O¢ ce of the EU parliament?, like
the ECB?)
I Centralization of tasks at the EU level.
I Agreement of 21 European IFI’s (September 2015): they
stress independence and their comparative advantage
(understanding national economies and public …nances and
close familiarity with domestic challenges and risks).
IFI’s in the EU ADEMU - cambridge

20. The IFIs The case of Spain (AIReF) Challenges for the European IFIs
Agreement of EU IFI’s (II)
I Voluntary network (platform to exchange views, expertise and
resources).
I The Network is a voluntary and inclusive institution open to
all independent …scal oversight bodies operating in the EU. It
provides a platform to exchange views, expertise and pool
resources in areas of common concern.
I Secretariat in Bratislava. President: José Luis Escrivá, Chair
of the Spanish AIReF.
IFI’s in the EU ADEMU - cambridge