Reforming the fiscal rules: a radical shift or short shrift? BY MAIRÉAD FARRELL
The EU Commission has relaunched its review of the Eurozone’s fiscal rules. Announced with something of a whisper, expect a lot of raised voices in the coming months. The rules were thankfully suspended at Covid’s onset and won’t return until 2023. For the uninitiated, the rules place limitations on each member state's debt and budget deficit levels. As such, they have a significant impact on economic performance. Two of the principal requirements are that annual budget deficits remain below 3% of GDP and the total debt to GDP ratio of state be below 60%. Their suspension allowed states to undertake the necessary emergency spending needed to address the pandemic. While the EU has created a €750 billion spending fund, the coalition government had diverted an extra €32 billion in spending by July 2021 to mitigate the impacts of Covid, measures that would not have been possible if the Eurozone fiscal routines had not been suspended. As long as the Eurozone spending rules have been with us, almost 30 years now, so too have been calls for reform. It’s speculated the EU Commission will propose their simplification, greater incentives for productive investment, and changes to debt to GDP ratios. Submissions from member states are being sought and it’s essential we have our say. As the IMF pointed out, we’re facing a future of considerable uncertainty. Uncertainty for our low corporate tax model, corporate tax revenues, and
environmental performance. If we are to achieve economic growth that’s sustainable, inclusive, and leads to shared prosperity, we will increasingly have to ‘grow our own’ when it comes to stimulating new businesses and developing new economic initiatives. There is an exceptional opportunity for an entirely new entrepreneurial approach in Ireland with visionary and strategic public investments distributed across all the economy, the aim of which is to drive domestic innovation. It would mean synergy between the state and private sector, with local communities rural and urban. We should set no boundary on what could be possible whether it is a more radical all island broadband infrastructure or a fully developed electricity infrastructure that can deal with all types of renewable energy. However, the rules as currently constituted will act as a barrier to that, straitjacketing not only our national efforts to achieve a Just Transition with a Green New Deal, but also with wider European efforts. Below I make the case for reform, outlining what kind of reformation is required and why our government needs to become actively involved in the reform process.
The Fiscal Rules – A brief history
First, let’s understand the concept of fiscal rules. They’re self-imposed constraints governments place on fiscal policy by establishing numerical limits for public finances, such as
• EU Commission President Jacques Delors published ‘Report on economic and monetary union in the European Community’ in 1989 20
ISSUE NUMBER 4 – 2021 - UIMHIR EISIÚNA 4 anphoblacht
