Read full blog post here. 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.