The debate on the 2022 European Semester Autumn Package with Commission Vice-President Valdis Dombrovskis and Commissioner Paolo Gentiloni in the European Parliament once again fiercely dealt with reforming European fiscal rules. Even though the economic recovery was encouraging, there is not much time left to agree on new fiscal rules before the Stability and Growth Pact 2023 would come into full force again.
On 7 February 2022, the European Union celebrated the 30th anniversary of the Maastricht Treaty, which forms among other the basis for common fiscal rules, which first and foremost are oriented towards avoiding excessive budget deficits. However, to be able to react to the economic downturn in the current Coronavirus crisis and to enable investments, the fiscal rules as well as other parts of the Stability and Growth Pact were temporarily suspended. Due to the economic recovery, they shall again apply from 2023, which once more sparked the debate on the EU’s economic orientation. In February 2020, the Commission had already launched a Consultation on the Economic Governance Review, thereby holding out in prospect a reform of the European Semester and the underlying fiscal rules; however, this was suspended due to the pandemic and only taken up in October 2021 with the Consultation “Economic Governance Review”.
The Commission aims at “reducing debt in a growth perspective manner”
In the debate between European Parliament and Commission, both the Commissioner for Economy, Gentiloni and Vice-President Dombrovskis praised the joint, speedy and strong response of the European Union to the Covid pandemic and the economic downturn resulting from it. The EU Commission’s Autumn and Winter Forecast shows that the EU will recover from the economic crisis. The EU’s GDP is almost at pre-crisis level and the economic support measures have significantly softened the labour market situation since the highest unemployment rate in December 2020.
However, inflation and high energy prices are a course for concern. The pricing pressure is a serious problem for low-income households. According to the Commission, inflation will remain at this high level for longer than hitherto expected. It was therefore of special interest that economic support is targeted and that public finances are not overburdened. In a debate with the European Parliament, Vice-President Dombrovskis emphasised that “reducing debt in a growth perspective manner is no oxymoron” and must not necessarily represent a contradiction in itself. However, this would require some effort. In March 2022, the Commission will present its guidelines for the next step in 2023. New country-specific recommendations will follow in May 2022.
Agreement on reforming the fiscal rules – but how?
Both Commission and Parliament agree with regard to reforming the European Semester. The fiscal scope of Member States concerning public investments is still very limited, often at the expense of the well-being of society as a whole. According to leading economists such as Achim Truger, the shortcomings of the existing fiscal rules are particularly apparent in arbitrary and insufficiently flexible debt and deficit limits within the Stability and Growth Pact. One solution for example would be a Golden Investment Rule, which would ensure that public investments would not be used to calculate the new debt of Member States. Hence, from the Chamber of Labour’s point of view, it is therefore necessary to reform the Stability and Growth Pact and to democratise the European Semester by greater integration of the European Parliament in the entire process. Hence, 2022 will be decisive for a more social and sustainable realignment of the European Union’s economic and fiscal policy.