Proposals for a reform of the EU's fiscal rules and economic governance

Debt-to-GDP ratios are set to rise significantly all over the world as a result of the coronavirus crisis. This will pose a huge challenge for the EU's member states and in particular the euro area countries, because of the strict fiscal rules. The IMK advocates a reform focused on appropriate fiscal rules that promote short-term macroeconomic stabilisation and long-term modernisation of the public capital stock, while still keeping the sustainability of public debt in mind. We propose an expenditure rule for non-cyclical, non-investment expenditure coupled with a Golden Rule for public investment. As a pragmatic solution, the permissible debt-to-GDP ratio should be increased to 90%, while escape clauses should apply during times of crisis. The Macroeconomic Imbalance Procedure should also be reformed. We advocate a Macroeconomic Dialogue to ensure compliance with the reformed rules and consistency of national strategies.