The International Monetary Fund (IMF) recommended this Monday that the EU undertake an economically sound and politically acceptable reform of the fiscal framework to avoid an “undesirable accumulation” of public debt.
“Existing rules have had some success, especially in raising public awareness that fiscal deficits must be less than 3% of GDP [produto interno bruto]but they did not prevent an undesirable accumulation of public debt and fiscal sustainability risks in some members”, he stressed, in a report.
The Washington-based economic institution considered that, as seen in the European sovereign debt crisis, such risks had threatened the stability of the monetary union in the past and continued to generate vulnerabilities despite efforts to strengthen central supervision.
Therefore, the IMF has proposed to link fiscal rules to the level of risk. Although the limit of 60% of GDP for debt and the limit of 3% of GDP for deficits remain as reference points, “the speed and ambition of the adjustments would be linked to the degree of fiscal risks,” he indicated in the report. same document.
Thus, countries with higher fiscal risks should move towards a positive balance in the next three to five years, while countries with lower risks and a debt of less than 60% can enjoy greater flexibility.
The IMF also highlighted the need to strengthen fiscal institutions in each member country, with medium-term frameworks and multi-year spending limits and a greater role for independent fiscal councils in approving macroeconomic projections or assessing financial risks.
The third pillar of this proposal is a “well-designed” fiscal capacity to achieve two key objectives: improve macroeconomic stabilization and allow the provision of common public goods at the EU level, in areas such as climate change or energy security.
The IMF said it believed these recommendations should be seen as “a package of interconnected elements to promote effective reform” and recognized that a mutual effort between EU rules and implementation at the level of each member state was needed.
For the institution, “the extraordinary economic uncertainty and the imminent fiscal challenges” mean that the long-awaited reform cannot wait.
The extension until 2023 of the general clause that facilitates public spending without exposure to sanctions, provides a window of opportunity, he said.
“Further delays would force countries to go back to the old rules with all their problems. The opportunity should not be missed”, concluded the IMF, which considered it urgent to make the aforementioned changes.
Source: TSF
