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The EU faces the challenge to combine large and sustained investments to promote the transition towards a green, digital, and competitive Europe while maintaining fiscal sustainability. Based on a comprehensive literature review on the effects of fiscal rules and investment clauses on public finances, this in-depth analysis provides some guidance how higher public investments can be achieved by a targeted golden rule without harming fiscal sustainability in the EU fiscal framework. The study also ...

Debt sustainability analysis as an anchor in EU fiscal rules

Λεπτομερής ανάλυση 21-03-2023

The Commission’s reform orientations propose that debt sustainability analysis (DSA) should serve as an anchor in EU fiscal rules. After discussing the main assumptions of DSAs in projecting public debt ratios, we analyse four critical aspects in designing such a reform: making judgement calls with regard to DSA assumptions; ensuring transparency and democratic legitimacy; promoting public investment in the context of climate goals; and tackling cross-border effects of fiscal policy, in particular ...

The necessary green transition in the EU requires substantial additional green public investment (GPI) by Member States throughout this decade and beyond. This briefing paper discusses four approaches for a reform of EU fiscal rules to better accommodate higher (debt-financed) GPI: (1) an exemption clause for GPI; (2) the implementation of a green golden rule; (3) a country-specific benchmark share of government expenditures dedicated to GPI recommended by the European Commission; and (4) an EU Climate ...

The role of public investments in the EU economic governance framework

Λεπτομερής ανάλυση 23-01-2023

A special treatment for certain types of investments, such as green investments, in the European fiscal framework may be justified on the ground that there are priority objectives such as the future health of the planet. An “investment clause”, less restrictive than the existing one, can be envisaged for projects that are co-financed, financed or guaranteed by the European Union or by European Union Institutions, such as the European Investment Bank.

The Communication by the European Commission to reform the Economic Governance Framework offers welcome headspace for public investment, while avoiding the de jure adoption of a ‘targeted Golden Rule’ as this could conflict with national accounting conventions. However, even with this reform, EU-strategic goals for public investment risk to be missed once the Recovery and Resilience Facility (RRF) runs out. Making a RRF-like instrument a permanent feature of the EU’s fiscal landscape could be a way ...

Ten issues to watch in 2023

Λεπτομερής ανάλυση 10-01-2023

This is the seventh edition of an annual EPRS publication aimed at identifying and framing some of the key issues and policy areas that have the potential to feature prominently in public debate and on the political agenda of the European Union over the coming year. The topics analysed encompass the 2024 European elections, budgeting in times of crises and war, lessons for public investment in the EU from the EU recovery instrument, the fiscal and monetary policy mix, climate and socio-economic tipping ...

The public sector loan facility (PSLF) is the third pillar of the Just Transition Mechanism, along with the Just Transition Fund and just transition scheme under InvestEU. The PSLF consists of a grant and a loan component. With the contribution of €1.525 billion for the grant component from the Union budget and European Investment Bank lending of €10 billion from its own resources, the aim is to mobilise between €25 and 30 billion in public investment over the 2021-2027 period (in 2018 prices). Funding ...

In the context of the review of the EU economic governance framework, this study recommends a multi-year ahead expenditure rule anchored in an appropriate public debt target, augmented with an asymmetric golden rule that provides extra fiscal space only in times of a recession. An improved governance framework should strengthen national fiscal councils and include a European fiscal council, while financial sanctions should be replaced with instruments related to surveillance, positive incentives, ...

The role of fiscal rules in relation with the green economy

Λεπτομερής ανάλυση 03-09-2020

This paper discusses the analytical basis for facilitating green public investment under the Stability and Growth Pact fiscal rules. It concludes that additional public debt created by deficit-financed green public investment is likely to increase fiscal sustainability risks. However, such additional risks could be justified to avoid the economic damages (which would also have long run consequences for public finances) arising in the absence of sufficient green public investment. Tre trade off could ...

This study argues that to achieve the necessary green transition in the EU, additional public investment by Member States will need to be mobilised throughout the next decade. In light of the macroeconomic environment of very low interest rates, this calls for a reform of the EU fiscal framework. The paper discusses three approaches for a reform of the fiscal rules to better reflect the need for higher (debt-financed) green public investment: (1) an exemption clause for green public investment; ( ...