The European Commission's approach to a reform of the EU fiscal framework: a legal and economic appraisal

Abstract

This article offers a legal and economic analysis of the European Commission’s orientations for a reform of the EU economic governance framework as published in November 2022 that have been carried through in three Commission legislative proposals from April 2023. To this end, the shortcomings of the current framework as identified in the relevant legal and economic literature are reviewed. This, then forms the analytical basis for assessing the reforms as proposed by the European Commission. The main question is whether the plans currently on the table can effectively address the shortcomings identified not only in the literature but also by the Commission. The article concludes that this is only partially the case. The proposed focus on the medium term, the differentiation between Member States depending on their debt sustainability position, and the net expenditure rule are to be applauded. However, the fact that the excessive deficit procedure remains in place for the 3%-to-GDP rule undermines several of the acclaimed advantages of the proposed European economic governance framework notably that it is less complicated and leads to less pro-cyclicality than the current framework. Furthermore, there is little in the Commission’s plans that would suggest that enforcement under the proposed framework would not be as weak as under the current framework. The position of the only directly democratically legitimised Union institution, i.e. the European Parliament, is not substantially strengthened, while the discussion on the establishment of a greater supra-national fiscal capacity has been left out altogether.

Keywords: Economic and monetary union; European Union; Fiscal policy; Stability and growth pact

JEL Classification: E00, E02, E61, E62,