The Public Finances Of The European Union

The Public Finances Of The European Union Presented by: Dr. TELEKI Date: 11 – 13 January 2025 The Maastricht Treaty and the Stability and Growth Pact - The Maastricht convergence criteria: • Price stability; • Sound and sustainable public finances;  3% for the ratio of the planned or actual government deficit to gross domestic product at market prices  60% for the ratio of government debt to gross domestic product at market prices - • Exchange-rate stability; • Rules related to long-term interest rates. The Stability and Growth Pact (1997): • The concept of excessive deficits" and the excessive deficit procedure (EDP) • Preventive Arm and Corrective Arm  Political commitment  Preventive elements  Dissuasive elements o EDP • Reform of the SGP (2005)  'Should we just forget the Pact?' The Impact Of The 2008 Crisis And The Eurocrisis - DISCIPLINE AND FISCAL HARMONIZATION • 01. Ensuring the balanced or surplus character of national budgets • 02. Increasing the impact of the recommendations made by the European Commission • - 03. Better coordination of national economic policies Sovereign-debt crisis + Eurocrisis (2011) - Bail-out packages - European Stability Mechanism - Fiscal Compact - Six-Pack and Two-Pack - Institutional innovation (ESA, Banking Union) What about the EMU 2.0? - Complete Banking Union and Capital Markets Union - Financial Union - - • Diversified banks' sovereign exposures • European safe asset Economic and Fiscal Union • Economic and social convergence • Common fiscal stabilization capacity Institutions and governance • - Accountable institutions and effective governance Serious doubts about the current system characterized by the convergence criteria and the rules of the SGP... - The Five Presidents' Report (2015) - The 10 Points of the Commission (2022) - Commission's country-specific recommendations (2024) The 10 Points of the Commission (2022) - Moving towards a more risk-based surveillance framework focusing on debt sustainability and differentiating between countries based on their public debt challenges. - Retaining the current reference values for deficit and debt criteria (3% and 60% rules) but adapting the "debt reduction benchmark" to country-specific debt ratios. - Introducing national medium-term fiscal-structural plans integrating fiscal, reform, and investment objectives, merging stability and convergence programs. - Allowing Member States greater flexibility in setting their fiscal adjustment paths based on the Commission's reference budgetary adjustment path. - Establishing a common EU framework for assessing Member States' medium-term fiscal-structural plans, with the Council adopting the plans based on Commission assessments. - Monitoring the implementation of the plans through annual progress reports and allowing for plan revisions under certain circumstances. - Maintaining escape clauses for severe economic downturns and exceptional circumstances. - Strengthening EU enforcement through various available sanctions, including financial, reputational, and macroeconomic conditionality measures. - Increasing the role of independent fiscal institutions (IFIs) in monitoring and implementing fiscal rules and improving the setup and performance of IFIs. - Addressing the relationship between fiscal rules and the Macroeconomic Imbalances Procedure (MIP) Contemporary challenges... - EU = Green and Digital - Covid-19 aftermath ...and their impact on the EU budget. - Financial support to public investments and reforms • €672.5 billion  €312.5 billion in grants  €360 billion in loans - - Twin Transitions: Green and Digital • 37% for investments and reforms • 20% to foster the DIGITAL transition • The Commission will assess national plans against these targets "Transforming the resilience of Europe" • Next Generation EU • Recovery and Resilience Facility • LIFE + Just Transition Mechanism • Green finances • Horizontalization of green and digital requirements