The targets for budget balances and public debt of European Union (EU) member states should depend on each country’s degree of risk, the International Monetary Fund (IMF) defended yesterday in a proposal to reform the EU’s fiscal architecture. Keeping 3% and 60% of GDP as reference values for government accounts (provided for in the Stability and Growth Pact), “the speed and ambition of fiscal adjustment should be linked to the degree of risk,” the IMF defended yesterday, whose The budget department is headed by the Portuguese and former Minister of Finance, Vítor Gaspar.
The risk would be assessed through a debt sustainability analysis methodology to be developed by a new European body, the European Fiscal Council (EFC), an independent body.
“Countries with higher fiscal risks should converge towards a balanced or positive fiscal balance over the next three to five years. Countries with lower fiscal risks and debts below 60% of GDP should have more flexibility, but they also need to consider risks in its plans,” reads the IMF statement on the proposal, signed by Vítor Gaspar, Alfred Kammer (Director of the European Department) and Ceyla Pazarbasioglu (Director of Strategy).
The aim would be to better prepare countries for future external shocks, such as those faced by the European Union with the sovereign debt crisis and, more recently, with the Covid-19 pandemic. In fact, the Fund believes that the EU has a chance in 2023, the year when the so-called “escape clause”, created with the pandemic, in 2020 and extended until 2023, will still be in place. , allowing countries to have deficits above the 3% target.
“Amid the extraordinary economic uncertainty and fiscal challenges ahead, the reform of the EU’s fiscal architecture cannot wait. The extension of the general escape clause until 2023 provides an opportunity to do just that; further delays would forcing countries to go back to the old rules with all their problems. That opportunity must not be lost,” defends the Fund.
Strongest financial advice
The IMF’s proposal for the reform of the European fiscal framework also includes the setting of multi-annual ceilings on public expenditure and greater control of public budget policies by independent entities (such as the Public Finance Council in Portugal). These national entities for the evaluation and supervision of public accounts would be represented in the new Council
European tax framework (EFC). The European Commission would retain its oversight role and the EFC would be at the heart of a network of national councils “helping to promote good practice and give an independent voice, both on debt risk and on the implementation of the framework. [orçamental]explains the IMF.
Fundamentally, the organization stresses, will be that governments increase the quality of information and statistics on public accounts.
shock bottom
For the International Monetary Fund, the current rules governing the EU’s public accounts “have not prevented deficits and debt-to-GDP ratios from threatening the stability of the monetary union in the past and still creating vulnerabilities today”. The IMF states that macroeconomic stabilization tools are lacking. Therefore, the proposal to create a fund to help Member States in difficulty is drawing on the experience of NextGenerationEU (a €750 billion fund set up to finance Member States’ economic recovery plans after the pandemic).
The new instrument would be funded by the joint issuance of sovereign debt and “could be designed as a rainy day fund, building assets in good times and making transfers to support countries in bad times,” the IMF suggests. It could also serve to fund “specific spending cycles”, he adds, citing SURE, which was set up to deal with the high unemployment rate caused by Covid-19 and employee retention in companies. finance. At the same time, the new fund could act as a means for the common delivery of public goods, minimizing the risks of market failure – “a task that has become more urgent given the green transition and the common security concerns”, the IMF stresses and emphasizes the need to accelerate the environmental transition in a scenario of energy shock resulting from the war in Ukraine.
Source: DN
