Wolff, B. G. (2014) “Europe needs new investment, not new rules – the EU must avoid another useless fight over its fiscal rules and instead use political capital to foster growth“, Bruegel Institute, 25 June.
As the European Council meets in Brussels this week, the big debate on what a new policy deal for Europe could look like has re-emerged. Opponents group themselves around the famous “stability” vs “growth” camps, with the former arguing for the merits of fiscal discipline while the latter argues fiscal flexibility to finance reforms is more prudent. The “growth” camp points to the harsh reality that once the fiscal compact kicks in, it requires substantial savings by the government, while the “stability” camp emphasizes that this is exactly what is needed to render high debt levels and unfavourable debt dynamics more sustainable.
In my view, the EU must avoid another useless fight over its fiscal rules and instead use political capital to foster growth. A deal could be designed along 3 central elements.
The first element starts with the recognition that debt levels in several countries are already very high. The fiscal space to engage in a new stimulus as a growth instrument in those countries is simply not there and one must avoid risking a new financial crisis.
- Buti, M. & Mohl, Ph. (2014) “Lacklustre investment in the Eurozone: Is there a puzzle?“, VοxEU Organisation, 4 June.
- Hahn, J. (2014) “Public investment under the new EU Cohesion Policy is helping Europe out of the crisis and into growth“, LSE EUROPP, 27 May.
- Barbiero, Fr., Darvas, Zs. (2014) “In sickness and in health: protecting and supporting public investment in Europe“, Bruegel Policy Contribution, Issue 2014/02.