Fiscal Sovereignty (cepInput)


The year 2022 will be decisive for the EU's economic governance. After the softening of fiscal rules due to the Corona pandemic, the Commission decided on 19 October 2021 to tighten the reins again. The Centre de Politique Européenne in Paris has analysed the macroeconomic situation and developed proposals to stimulate growth while reducing debt-to-GDP ratios and achieving more fiscal sovereignty.


Marc Uzan and Victor Warhem, authors of the study, welcome Brussels' reform efforts. The cep economists call for a “carrot-and-stick" strategy. "The risks are significant. Southern Europe is threatened with problems if the fiscal leeway is abruptly restricted. Public investment would have to be cut back. New tensions in the euro area and thus a threat to the economic sovereignty of the EU would be the consequence," Warhem warns.

According to Uzan, it is indeed necessary to maintain the strict fiscal rules in the form of the Stability and Growth Pact as a "stick" "to send a credible signal of fiscal discipline to the markets". "But to ensure debt sustainability and reduce the risk of fiscal dominance, European policymakers should build a large and permanent central investment capacity inspired by the NextGenerationEU investment programme," suggests the cep director of Paris. "This capacity could finance the ecological transition," he adds. This "carrot" should also " complement the incomplete Eurozone", Uzan stresses.  

On March 10th and 11th, a new European growth model will be discussed during a Summit organised in the context of the EU French Presidency. An official proposal from the Commission is expected in June 2022. It is to be implemented by 2024.