The rule-based fiscal policy of the Stability and Growth Pact was again tightened in the wake of the euro crisis. However, in truth the complex deficit and debt restrictions were less and less able to withstand reality. The 2020 agenda included a revision of the fiscal policy framework. However, the outbreak of the Covid 19 crisis put this on the back burner. Instead, the escape clause was activated and the rules suspended. The Member States were thus given leeway to make the necessary expenditures and cushion the economic consequences of the pandemic.

Dispute over the direction of fiscal policy
The revision of the budget rules was resumed in 2022 and in April 2023 the EU Commission presented its proposal, which, among other, requires Member States to submit plans on how to reduce their debt ratio. The debate on redesigning fiscal policy is likely to dominate the economic policy debate in the coming six months. While an initial report is expected in the EU Parliament's Committee on Economic and Monetary Affairs at the end of September, an agreement among Member States is not yet foreseeable. For example, some countries - including Germany – are opposing country-specific rules, while France and Italy support them. If the legislative work on reforming the fiscal rules is not completed by the end of the year, the old rules would again apply after the planned abolition of the escape clause in 2024.

From the workers’ perspective one of the criticisms of the EU Commission's current proposal is that it once again hinders vital future investments. The European Trade Union Confederation even sees the risk of returning to austerity policies. Furthermore, it is also demanded that attention be paid to the democratic embedding of the rules. This is addressed in a recent study by the Friedrich Ebert Foundation - with remarkable results.

EU fiscal policy in the focus of democracy policy
Mark Dawson, Professor of European Law and Governance at the Hertie School in Berlin, identifies several problems and develops proposals to make European economic policy coordination more democratic. For example, on the issue of national ownership, the focus is mainly on the relationship between EU Commission and national government level. Another criticism is that procedures are only envisaged in the case of non-compliance with fiscal rules, whereas the goals of ecological and social sustainability are neither bound to rules nor consequences.

For more democratic fiscal rules, the author sees the need to involve national Parliaments, organised civil society and social partners. This is not only a goal in itself but also a necessity to actually strengthen national ownership based on broad popular consent.

However, regarding the process of economic governance, the European Parliament should also be more involved at EU level. While the debate is taking place almost exclusively from a national perspective, the pan-European perspective is often neglected. As the only directly elected institution at EU level, the European Parliament should also be transformed from a scrutiny to a co-decision body with regard to economic governance.

Democratisation for balanced goal setting
Finally, broader political participation is also necessary to ensure a balance in the consideration of social, environmental and fiscal goals. With this in mind, the author also recommends, for example, a mandatory estimate of the socio-environmental consequences of the projected fiscal plans. Apart from that, the effects of the implementation of the fiscal rules should be evaluated in terms of how they affect the ability of Member States to achieve the climate targets and fulfil the European Pillar of Social  Rights.

Further information
AK EUROPA: Promoting investment in the future and social balance? New proposal for EU fiscal rules unconvincing
EU Commission: Commission proposes new economic governance rules fit for the future
FES Study: How to democratise Europe’s fiscal rules
EURACTIV: Hot economic policy autumn