The
European Union’s (EU) Stability and Growth Pact requires Eurozone countries to
annually lay out their fiscal plans for the following three years. The European
Commission (EC) then compares the member states’ reports with its own
projections and those produced by independent bodies, such as the International
Monetary Fund (IMF), to evaluate whether the member states are on track to
reach their Medium-Term Budgetary Objectives (MTOs). It is important to note
that Eurozone countries’ macroeconomic forecasts usually diverge, sometimes
significantly, from the reports produced by the EC and the IMF.
For
instance, the most recent IMF ‘Fiscal Monitor’ report predicts larger fiscal
deficits (as percentage of GDP) than member states’ self-reported projections
for 14 out of the 19 Eurozone countries in 2017. At the same time, European
Commissioner Pierre Moscovici re-emphasized yesterday, at an Atlantic Council conference on Europe’s future post-Brexit, that fiscal discipline
is a precondition for solidarity among EU member states. The close link of
fiscal discipline to member states’ solidarity underscores why it is so
important for the EC to be able to identify potential violations of the
Stability and Growth Pact ahead of time. The persistent discrepancies between
member states and independent bodies’ estimations could threaten the cohesion
of the Eurozone and potentially undermine confidence in the European economic
recovery.
For
more information on Europe’s fiscal burden please take a look at the most
recent EuroGrowth Initiative publication “Europe Needs To
Trim Its Excessive Fiscal Burden”. In this issue brief, Anders Åslund explains why excessive
public spending is one of the most crucial structural challenges that Europe is
facing today.
The European Union’s (EU) Stability and Growth Pact requires Eurozone countries to annually lay out their fiscal plans for the following three years. The European Commission (EC) then compares the member states’ reports with its own projections and those produced by independent bodies, such as the International Monetary Fund (IMF), to evaluate whether the member states are on track to reach their Medium-Term Budgetary Objectives (MTOs).
