HELSINKI - European Union finance ministers were holding a first discussion on Saturday about how to simplify the EU’s complex fiscal rules to help make public finances more sustainable and stabilise economies throughout business cycles.
After modifications in 2005, 2011 and 2013, the rules have become so complex that the European Commission, which is the guardian of EU laws, each year publishes an almost 100-page handbook to explain how they work, along with many exemptions and exceptions. “We now heavily use directly unobservable parameters like the output gap, or structural balance, so the discussion is if we should use more directly observable parameters like nominal debt and expenditure increases,” he said.
Countries that have debt above 60% would have to keep net government primary spending, which is expenditure less interest payments on public debt, at or below the rate of the economy’s potential GDP growth, which is the rate of growth that does not trigger higher inflation. The existing rules cap the headline budget deficit at 3% of GDP and oblige governments every year to cut their structural deficit, the budget shortfall excluding one-off revenues and spending and the effects of the business cycle, until they reach balance or surplus.
Dombrovskis would like to implement Latvian success throughout EU. Good luck!
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