What Are the Implications of the COVID-19 Pandemic on the EU’s Fiscal Architecture?


ZEW/EconPol Special Policy Session of the ZEW Research Seminar Series

Academics and policymakers met virtually to discuss how the EU’s fiscal architecture might be adjusted in the light of the COVID-19 pandemic during a lunchtime seminar on 3 December 2020. The seminar was organised jointly by ZEW Mannheim and the international research network EconPol Europe, moderated by ZEW economist Dr. Zareh Asatryan, deputy head of the “Corporate Taxation and Public Finance” Research Department. Around 120 participants from all over Europe joined the special policy session of the ZEW seminar series.

The seminar kicked off with Roel Beetsma, professor at the Amsterdam School of Economics, and Xavier Debrun, PhD, advisor at the National Bank of Belgium, both members of the European Fiscal Board (EFB), presenting the findings of the EFB Annual Report. The board’s fourth annual report assessed the implementation of the EU fiscal framework in 2019. It suggests that even before the COVID-19 shock, the EU fiscal framework had already fallen short of its aims. While the shock has further exposed the weaknesses of the framework, it has also provided a window of opportunity for reform while the escape clauses are active.

The future of the EMU’s architecture

The presentation of the EFB report was followed by discussions delivered by Agnès Bénassy-Quéré, professor at the Paris School of Economics, and Thomas Westphal, director general for European policy at the German Ministry of Finance.

The discussions centred around three long-standing gaps in EMU’s architecture:

  1. the lack of a genuine and permanent central fiscal capacity;
  2. adverse incentives to maintain or scale up growth-enhancing government expenditure;
  3. an intractable set of rules and benchmarks poorly tailored to country-specific needs and capacities.

The panel was unanimous in concluding that reforms as well as fiscal rules and their effective implementation in the monetary union would be more important than ever after the COVID-19 crisis. The focus was put both on the right share of (reasonable) investments and on the necessity to simplify fiscal rules.

The audience contributed to the subsequent discussion with various questions. For instance, reference was made to the political and fiscal opportunities offered by the EU’s COVID-19 recovery plan: “Next Generation EU” enables the EU to level asymmetric European economies and achieve a better design for EU-wide fiscal rules.

About EconPol Europe

ZEW is one out of nine founding institutions of the “European Network for Economic and Fiscal Policy Research” (EconPol Europe). As an international and independent network bringing together several hundred researchers, EconPol Europe is establishing a new voice for research in the discussion surrounding the future of economic and fiscal policy in the European Union. Headed by the Munich-based ifo Institute, the founding charter for EconPol Europe was signed on 22 June 2017. Within the framework of EconPol, researchers from seven different countries are looking into how cross-border cooperation can be used to deal with financial and economic issues facing Europe. The combined expertise of the partner institutions will be used to introduce new ideas and solutions into the most pressing debates over the future of the EU. Alongside ZEW and ifo, the other partner institutions are the Centre for European Policy Studies (CEPS, Brussels), the Centre d’Études Prospectives et d’Informations Internationales (CEPII, Paris), the Institute for Advanced Studies (IHS, Vienna), the Toulouse School of Economics, the University of Oxford (Centre for Business Taxation), the Università di Trento (Department for Economics and Management) and the VATT Institute for Economic Research (VATT, Helsinki).

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