To tackle all of the very pressing current and future challenges facing the European Union, we believe there is one key ingredient: We need to make sure we have sustainable public finances which safeguard stability, growth and room for manoeuvre in all Member State and in the European Union as a whole. Both today and in the long term. And the good news is that we have a mechanism for doing this, namely the Stability and Growth Pact.

So what happened? Before the pandemic, fiscal policy in Europe was too expansionary at times. More could have been done to consolidate and build fiscal buffers when the economy was performing at a regular or healthy pace. The rules of the pact were designed for this purpose, namely to allow countries to build up fiscal buffers in good times that can be drawn on in bad times. With the measures taken to deal with the adverse consequences of the pandemic, government debt in some EU Member States rose to record levels, as did public debt at the aggregate level. While the Member States of the euro area had an average public debt of 86% of GDP in 2019, this figure quickly climbed to almost 100% in 2020, before decreasing to around 93% by 2022. Back in 2002, when the euro was introduced in cash form, the ratio was still 68%. The point is: We cannot allow debt levels to rise indefinitely from crisis to crisis. This would permanently overload public finances, which is particularly costly in times of rising interest rates. This is money that can be put to better use elsewhere, and especially now at a time when we are facing multiple challenges. And that is another reason why we need to reintroduce the fiscal rules – but revise them to ensure proper budgeting and priority-setting in the coming years.

Effective fiscal rules are also essential in terms of making sure that fiscal policy does not create inflationary pressures on a lasting basis. This is particularly true within the monetary union. And fiscal policy cannot ignore the changed geopolitical realities either, including climate change, the digital transition and defence policy. Although, it should be clear to all: As far as the capital markets are concerned, debt is debt. Capital markets are not interested in the motives for taking on debt, however worthy they may be. To preserve credibility vis-à-vis the capital markets, Member States need to avoid excessive deficits and debt levels or implement realistic, timely and sufficient reductions in deficits and debt ratios.

At the end of April this year, the European Commission set out its proposals for the future of our common economic governance framework. These proposals should be seen as a stepping stone in our discussions in the Council, not as a conclusion.

In our view, having clear and comprehensible rules that are equally applicable to all Member States makes them easier to comply with and enforce. We therefore see it as our task to work for reliable, transparent, easily measurable and binding fiscal rules in Europe. Indeed, these four factors are the basis for ensuring equal treatment among the Member States. Quantitative criteria that apply to all Member States help by formulating clear minimum requirements that allow consolidation and support growth. After all, fiscal policy is about quantifying political priorities.

The Commission’s proposals envisage a move towards a greater medium-term focus in budgetary policymaking. This has its advantages, notably because fiscal risks extend beyond the short term and those cannot be ignored. And there can be more room for political priorities in the short term, if countries commit to and start implementing economic reforms that improve public finances and debt sustainability in the longer term.

At the same time, we have to ask ourselves how effective reform and spending decisions will be if they are made too far in advance, also in light of the increasingly high uncertainties the Union is facing. We are not convinced that timeframes for necessary consolidation efforts extending far beyond the cycle of a legislative period will yield the best possible results. Indeed, if plans reach too far ahead, they could be rendered obsolete by current developments, meaning that we in Europe react too slowly to new challenges, thereby weakening our global competitiveness. Nor can the adoption of a stronger medium-term focus lead to situations in which future challenges are used to delay or postpone those fiscal adjustments that are necessary today. This would put a further permanent strain on the sustainability of public finances and destabilise the monetary union. However, a stronger focus on the medium term should allow for more gradual, but ambitious adjustments.

As the guardian of the EU treaties, the European Commission has an essential role to play in terms of fiscal surveillance. But it must have clear guidelines and jointly defined and verifiable targets. We need to preserve the right balance between the powers of the European Commission and the Member States. The treaties provide for multilateral surveillance and thus foresee an important role for the Member States as well. This must be kept this way.

In the coming weeks and months, we will continue to consult intensively and constructively with our European counterparts to arrive at a set of fiscal rules that work for Europe and all our citizens, combining the sustainability of public finances with room for manoeuvre to meet current and future challenges.

Christian LINDNER (Germany)
Zbyněk STANJURA (Czech Republic)
Magnus BRUNNER (Austria)
Assen VASSILEV (Bulgaria)
Stephanie LOSE (Denmark)
Marko PRIMORAC (Croatia)
Klemen BOŠTJANČIČ (Slovenia)
Gintarė SKAISTĖ (Lithunia)
Arvils AŠERADENS (Lativa)
Mart VÕRKLAEV (Estonia)
Yuriko BACKES (Luxembourg)