Charts of the Week

New year, new fiscal rules for Europe?


Euro notes and coins were introduced on 1 January 2022, and the euro is celebrating that 20th anniversary in fairly good shape. However, there are still many plans to improve and strengthen the European project and increase integration.

Public debt to GDP ratio in 2021

This is shown by the topics on the agenda during the French presidency of the Council of the European Union over the next six months. Priorities will include reforming European fiscal rules, which will be a major topic of debate in 2022. Discussions are underway and decisions should be made this year. The challenge will be to avoid an anticlimax. There is broad agreement that reform is needed, particularly so that rules are less complex and enjoy greater compliance, and because most countries are currently a long way from meeting the key criteria (budget deficit limited to 3% of GDP and public debt limited to 60%). However, it looks like it will be hard to reach a consensus on how to achieve this via an optimal trade-off between fiscal credibility, flexibility and discipline, debt reduction and support for green and inclusive growth.

In particular, given the disparity between individual countries’situations, how far should the public debt limit be raised? To 100%, as proposed by Klaus Regling, the managing director of the European Stability Mechanism? Should Europe relax this criterion alone, or should the other rules governing achieving it and complying with it also be relaxed? Is a single target even appropriate? Europe’s current economy commissioner Paolo Gentiloni, for example, is in favour of setting individual debt limits. We may have some answers after the strategic discussions on this matter scheduled for 10 and 11 March, as part of the special summit in France that will bring together Europe’s 27 heads of state and government, with the theme of defining the new European growth model.

Team : OECD economies