EU Governments Must not Return to Their Dysfunctional Fiscal Rules
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Achim Truger
Abstract
Fiscal rules such as the European Stability and Growth Pact and the German debt brake have been suspended in the Covid19-pandemic in order to provide emergency measures and to overcome the crisis. Now, the controversial debate is back again: When should governments return to fiscal rules? Should they return to fiscal rules, at all? This article argues that it is not so much a question whether governments should return to fiscal rules at all, but to which kind of rules they should return. Following the deficit bias argument and the need for fiscal policy coordination in a monetary union some kind of limitation for government debt and some kind of fiscal rules may easily be justified. However, that does not mean that governments should return exactly to the previously existing rules, because these are economically flawed. Recently the argument for reform has become even stronger due to new empirical evidence about the macroeconomic effectivity of fiscal policy, the experience of the dysfunctionality of the existing rules during the Euro crisis and the fact that the cost of public debt has been reduced dramatically because of persistently low if not negative nominal interest rates.
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Articles in the same Issue
- Frontmatter
- Editorial
- Editorial: Expansionary Monetary Policy and the Design of Debt Rules in the European Union
- Policy Papers
- The COVID-19 Inflation Weighting in Israel
- Beware of Pitfalls in the European Central Bank’s Review of Monetary Policy Strategy
- The Inflationary Potential of the Historic 2021 SDR Allocation
- Subsidizing Semiconductor Production for a Strategically Autonomous European Union?
- Policy Forum: Debt Rules in Germany and the Euro Area
- Fiscal Rules: Anchors of Stability
- Public Expenditure and Sustainable Public Finances Post-COVID
- EU Governments Must not Return to Their Dysfunctional Fiscal Rules
- In an Imperfect World Policy Rules Cannot be Perfect Either
- Private Enforcement of the German Debt Brake
- Releasing the Brake: Germany’s National Fiscal Rule No Longer Ensures Compliance with European Fiscal Rules
Articles in the same Issue
- Frontmatter
- Editorial
- Editorial: Expansionary Monetary Policy and the Design of Debt Rules in the European Union
- Policy Papers
- The COVID-19 Inflation Weighting in Israel
- Beware of Pitfalls in the European Central Bank’s Review of Monetary Policy Strategy
- The Inflationary Potential of the Historic 2021 SDR Allocation
- Subsidizing Semiconductor Production for a Strategically Autonomous European Union?
- Policy Forum: Debt Rules in Germany and the Euro Area
- Fiscal Rules: Anchors of Stability
- Public Expenditure and Sustainable Public Finances Post-COVID
- EU Governments Must not Return to Their Dysfunctional Fiscal Rules
- In an Imperfect World Policy Rules Cannot be Perfect Either
- Private Enforcement of the German Debt Brake
- Releasing the Brake: Germany’s National Fiscal Rule No Longer Ensures Compliance with European Fiscal Rules
