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In 2021, the Commission relaunched the public debate on the reform process after a year’s hiatus due to the pandemic. Now, under the shadow of the Ukraine crisis, the EU’s fiscal rules are officially one of the hot topics on the agenda in 2022.

EU fiscal rules 101 – why are they important for people’s lives?

The EU’s fiscal rules feel far removed from our day-to-day lives, but they impact us more than many realise. In a nutshell, they are based on a set of out-dated and arbitrary rules that determine how high EU countries’ debt and deficit levels can go (not beyond 60% debt-to-GDP ratio or 3% deficit-to-GDP ratio). If a country goes over, they have to bring the levels back down quickly, which often leads to austerity.

We saw this in the last global financial crisis post-2008, with significant cuts to budgets and public investment that provided social protection, education, health, care and quality services to millions. These policies suffocated growth and competitiveness and caused unemployment and poverty to rise. Indeed, the EU was unique in the world in experiencing a double dip crisis, a result of these rigid rules. These choices left Europe vulnerable to the impact of the COVID-19 pandemic, which hit at a point where many EU countries still had not fully recovered from the previous crisis.

Fortunately, it seems that some lessons have been learned from the damaging choices made last time round: when the pandemic hit fiscal rules were paused and unprecedented investment plans were established. While the pandemic still increased inequalities in our societies, these investments helped reduce negative impact, for example by saving tens of millions of people from unemployment.

What’s happening now?

The lessons from the last two crises are shaping the direction the EU is taking on the reform of its fiscal rules. This shows – to a certain extent – in the fiscal policy guidance the European Commission just provided to EU countries for 2023. But as usual, the devil’s in the detail. It is positive that the EU clearly does not want to return to austerity and is recommending EU countries to gradually reduce their debts at country-specific speeds in a way that also supports public investment and sustainable growth. Unfortunately, when talking about investment needs, the guidance only focuses on the ongoing transitions to a climate-neutral and more digital Europe. There is barely any mention of investment needed to avoid the social impact of these transitions and no mention at all of the significant investment in social infrastructure needed after decades of underinvestment – estimated at €192 billion per year – or the investment needed to deal with the impact of the ageing of our societies. The guidance briefly mentions the challenges the EU is facing due to Russia’s invasion of Ukraine and the resulting refugee crisis. However, it does not refer to the substantial resources EU and national decision-makers will also need to mobilise to make sure that those in Ukraine and those fleeing are protected, and that service providers and civil society organisations are able to defend human rights and provide the support needed (Want to know more? Check out our statement on the war in Ukraine).

Overall, it seems that this policy guidance has been developed in a silo of economic experts in the Commission, without (sufficiently) involving social ones.

Want to know more about our position on the topic? Check out our previous blog post!