Putin’s decision yesterday is likely to further fuel the Russia-Ukraine conflict: The Russian president has recognized the self-proclaimed Donetsk and Luhansk People’s Republics in eastern Ukraine as independent states. This makes it possible to station Russian soldiers there. EU Commission President Ursula von der Leyen announced EU sanctions against Russia in response to the recognition of the Ukrainian territories. Ukraine had already wanted immediate punitive measures and received backing for this from the Baltic states. But some member states are calling for restraint. Sanctions should only be implemented if Russia actually attacks Ukraine – “but not before”, said a government spokesman in Berlin. Eric Bonse reports on the European discussion about the appropriate time for sanctions and gives an outlook on the planned punitive measures.
In early April, the EU Commission plans to present a draft regulation on the European Health Data Space (EHDS). Not much is known so far, but a call for tenders from the European Health and Digital Executive Agency gives a first insight into the plans for the European Health Data Space. The EU agency apparently has a consortium in mind to start work on a kind of beta version of the EHDS before the end of the year. A group of 16 partners, including one from Germany, led by the French Health Data Hub HDH, has applied for this tender. Eugenie Ankowitsch summarizes what tasks the group would face and how well the responsible partner in Germany is positioned.
The decision on tough economic sanctions against Russia is drawing closer. Following the European Council and the EU Commission, the EU foreign ministers also declared their readiness to impose punitive measures on Monday. They will be prepared when the moment comes, said High Representative of the European Union for Foreign Affairs Josep Borrell in Brussels.
However, there were differences of opinion on when would be the right moment for sanctions. Does it have to come to a “full” invasion of Ukraine first, as the US expects? Or is recognition of the two breakaway regions in eastern Ukraine enough? Russian President Vladimir Putin recognized the self-proclaimed Donetsk and Luhansk People’s Republics as independent states yesterday. State television shows him signing a decree to that effect.
EU Commission President Ursula von der Leyen said the European Union would respond with sanctions to Russia’s recognition of Ukrainian territories as independent regions. The USA also announced sanctions against Russia.
Referring to the announced recognition of the provinces, Borrell said, “We will respond to this with a strong and united front.” In the event of annexation of eastern Ukraine, the EU will respond with sanctions, the Spaniard said after the end of the meeting of foreign ministers in Brussels. However, there were also other opinions. Some countries hesitate, others demand haste.
Ukrainian Foreign Minister Dmytro Kuleba reiterated his country’s demand for immediate punitive measures against Russia. Not only political messages but concrete actions are expected, Kuleba said at the meeting of 27 EU foreign ministers in Brussels. “We believe that there are good and legitimate reasons to impose at least some sanctions.”
He received backing from the Baltic states. Lithuanian Foreign Minister Gabrielius Landsbergis said that there was already a Russian attack on Ukraine, and the EU had to react to that. Thus, one could think about punishing those who are responsible for misinformation about the Ukraine conflict.
Germany, Austria, and Ireland urged restraint. Sanctions should only be implemented if Russia actually attacks Ukraine – “but not before”, said a government spokesman in Berlin. Now it is a matter of returning to the negotiating table, stressed Foreign Minister Annalena Baerbock in Brussels.
“Sanctions are a reaction, a kind of punishment,” Austria’s chief diplomat Alexander Schallenberg said. “You can’t do that in advance, nor should you.” Irish Foreign Minister Simon Coveney advocated continuing to focus on diplomatic initiatives.
No decision was made on Monday. This would require a special meeting of the Council; because of the political and economic explosiveness, Brussels is even expecting an EU summit to be convened. At the last summit meeting last Thursday, there were still reservations about the sanctions.
Italy’s head of government Mario Draghi demanded that energy imports be exempted from possible sanctions. Austria’s Chancellor Karl Nehammer said that the economic consequences for EU countries should also be considered and that they should be helped if necessary. The EU Commission had also assured this, Nehammer said.
The risks and side effects are considerable – also for Germany. Meanwhile, it’s no longer just about the Nord Stream 2 Baltic Sea pipeline and gas supplies. EU Commission President Ursula von der Leyen said that Russia also wants to be cut off from the financial markets as well as hit all the goods the country needs “to modernize and diversify its economy”.
At the heart of the matter is an economic war – the EU wants to decisively weaken the Russian economy. All measures are closely coordinated with the US, emphasizes Ursula von der Leyen, who is preparing the sanctions package. But Washington could also go it alone – for example, in banning transactions in dollars, the world’s reserve currency.
Meanwhile, the French presidency is feverishly trying to avoid an escalation. At the initiative of President Emmanuel Macron, a summit between US President Joe Biden and Kremlin leader Vladimir Putin has been envisaged. The Kremlin in Moscow said there were no concrete plans for a summit yet. However, the heads of state could decide to arrange a telephone call or a meeting at any time.
A meeting of the Russian and US foreign ministers, Sergei Lavrov and Antony Blinken, is also planned for Thursday in Geneva. However, the recognition of Donetsk and Luhansk is likely to render these plans moot. With dpa
At the beginning of April, the EU Commission plans to present a draft regulation on the European Health Data Space (EHDS). So far, hardly any details have leaked out to the public. There are a few statements from interested organizations and the industry. But even these do not reveal more than their own wishes. But in the background, preparations are underway to establish the European Health Data Space.
In October, the European Health and Digital Executive Agency (HaDEA) published a call for proposals. The goal: a pilot project to develop an “EU infrastructure ecosystem for the secondary use of health data for research, policy and regulatory purposes”. This ecosystem is to be based on common standards and strategies to enable the integration of the currently fragmented national data systems.
The EU authority has in mind a consortium whose task is to build an IT infrastructure that connects the participating nodes and runs through concrete use cases in research. It will also examine the extent to which the infrastructure developed can be scaled across the Union. This would then be the backbone of the European Health Data Space.
At the end of January, a consortium of a total of 16 partners submitted its application documents. Among them are:
It also includes the main European health agencies EMA and ECDC, as well as the European Public Health Association (EUPHA) and the research networks Orphanet, Elixir, eBrains, and the pan-European infrastructure of national biobanking networks BBMRI-ERIC. The French health data agency Health Data Hub (HDH) leads the illustrious round.
As early as November 2021, Findata and the Health Data Hub, the first two centralized national health data agencies in Europe, signed a cooperation agreement (“Memorandum of Understanding”). The goal is to exchange health data securely and efficiently while respecting both the rights and freedoms of citizens and the FAIR principles (Findable, Accessible, Interoperable and Reusable).
The collaboration would focus on four topics: the development of metadata catalogs, best practices for data access and management, international collaboration, and the organization of joint communications.
The HDH is the French version of a one-stop shop for health data, similar to Findata. It provides public and industrial research with centralized access to data sources from a wide range of healthcare stakeholders. If the application is successful, HDH staff compile the datasets and provide secure access to the data in a dedicated online research environment. In line with the transparency principle of the GDPR, all projects are listed in a public register of the HDH.
With its leading role in the EHDS consortium, France apparently wants to further strengthen its position in the field of health. In the middle of last year, President Emmanuel Macron presented the health innovation plan “Plan Innovation Santé 2021-2030”. It aims to put France at the forefront of European health research. In the fall of 2021, the government also launched the “Digital Health” initiative. With this, France aims to become the global market leader in digital health by 2025. The package is to be endowed with a total of €650 million.
However, one of the biggest challenges for the consortium is likely to be the divergent degrees of development among the partners. While the Health Data Hub and, above all, Findata are among the digital model students and pioneers, the German Research Data Center (FDZ), for example, is still in its infancy.
The FDZ is located at the Federal Institute for Drugs and Medical Devices (BfArM). Initially, the center originated from the former data processing center of the German Institute of Medical Documentation and Information (DIMDI), which was incorporated into the BfArM in 2020. The legislature initiated the FDZ in 2019 through the Digital Care Act. The Data Transparency Ordinance (DaTraV) concretizes these legal regulations.
But unlike Findata and HDH, which were also enabled by 2019 legislation, the research data center is still under construction. Currently, according to the BfArM, the legal, technical, personnel, and organizational measures are being defined and implemented. Applications for data use can probably be submitted in the fall of 2022.
The range of tasks of the FDZ will be expanded compared to the former data processing center. The main innovations include virtual analysis rooms for researchers. The new environment will also be scalable and able to process a higher number of big data analyses. A powerful data center with correspondingly high-performance hardware is also to be built.
Apart from the varying degrees of development, the consortium’s task is also anything but trivial in other respects. Based on selected specific use cases, for example, an operational framework for the secondary use of healthcare data between different nodes is to be developed. This includes common metadata discovery, a common data access application, and the implementation of a data model to enable cross-border data use and transfer.
However, it is not enough to create the technical requirements. According to the call for proposals, concrete use cases must be worked through: starting with the conception, data determination, validation of the data and its availability, delivery, and ending with data processing and analysis. At the end of the project’s duration, HaDEA envisions nothing less than a definition of the technical, legal, and administrative requirements, as well as the architecture and eventual specifications for the IT and data infrastructure that will enable EU-wide reuse of health data.
The decision on the winner of the tender is to be made in the coming months. The winning consortium will start work in September 2022 for a maximum of two years. The EU is funding the pilot project with €5 million. However, whether their consortium actually wins the tender will not give the organizers from France sleepless nights.
According to the HDH, there is currently no information about possible competitors. However, the company does not expect any serious competition. After all, the HDH provides the majority of national health data platforms in Europe as well as important research infrastructures and EU agencies.
Many voices, in and out of the EU, are calling for a change of the Economic Governance of the EU. Among them, the European Fiscal Board (EFB) is pleading in favor of a modification of the fiscal rules of the Stability and Growth Pact (SGP), assessed to be too complex and poorly adapted to national contexts and specificities. Besides, the IMF, the World Bank, and the European Central Bank also consider that it is necessary to revise the SGP’s framework once again, despite prior revisions in 2005, 2011, 2012, and 2015.
In this context, on October 19th, 2021, the European Commission relaunched its February 2020 consultation on the Economic Governance Review. The strategy announced by the Commission entails providing an adapted response to both the structural challenges already present before the crisis (rapidly aging population, expected reduced labor supply and low growth potential in the EU, lagging digital transformation, climate change) and the consequences of the crisis (increased macroeconomic and public finance divergences in the EU).
Is this review – supported by an institutional consensus – really justified? An EU Economic Governance reform is indeed needed due to obsolete fiscal rules and a macroeconomic environment that has dramatically changed.
First, current SGP rules are complex and not even efficient. They did not allow for debt-to-GDP ratio reduction at the EU level despite national structural reforms during the last decade. Moreover, they amplify fiscal space divergences. These divergences currently lead to an increased risk of sovereign debt default of highly indebted European countries, which creates new tensions in the euro area.
When the Pandemic Emergency Purchase program ends in 2022, this heightened risk could motivate a new ECB intervention on sovereign markets to control spreads. Thus, perpetuating fiscal dominance, with an inflationary effect expected in the short and middle term. Finally, levels of public investments have been declining for many years due to fiscal constraints, which calls into question growth and economic sovereignty in the EU.
Given this delicate situation, can debt-to-GDP ratio reduction and economic growth enhancement be achieved simultaneously? Probably so, by pursuing a “Carrot-and-Stick” strategy.
First, launching a serious debt-to-GDP ratio reduction program requires maintaining fiscal rules. The idea of only relying on ex-post standards – like those promoted by Blanchard, Leandro, and Zettelmeyer – is not appropriate because common rules ensure “fairness” between member states that all belong to the same Union. This implies they must follow the same set of rules to guarantee a Union between equals instead of the untenable-over-the-long-term position of a Union between privileged and less privileged.
Besides, even if member states do not comply to the SGP rules all the time, empirical investigations have shown that such rules do shift public deficits towards debt-to-GDP ratio reduction and fiscal sustainability. In contrast, “market discipline” has proven to be too unpredictable and volatile in helping states maintaining fiscal discipline.
Regarding their design, fiscal rules should be simpler than the current ones. They should rely on potential output growth as a forward-looking element to compute national expenditure ceilings, which could be done on a multi-annual basis to provide more fiscal predictability, enforceability, and credibility – sending a signal of mid-term fiscal discipline to markets. Furthermore, the assessment of fiscal situations and escape clauses should be entrusted to a network of national independent fiscal authorities coordinated by a supervising agency at the European level.
However, whatever the changes, the SGP fiscal rules will remain a “stick” focused on debt-to-GDP ratio reduction, given the macroeconomic context.
Policymakers should instead focus most of their energy on a “carrot”: a perennial fiscal instrument, preferably a central fiscal capacity, which would help the EU transit to carbon-neutrality in 2050 – by bolstering the private sector as it struggles to engage in this transition and needs public support for risky and not necessarily very profitable investments. These public funds could leverage private investments like the current NGEU, or like the Juncker Plan did a few years ago. Furthermore, they would incentivize member states to conduct structural reforms due to their conditionality to structural reforms.
However, a central fiscal capacity should not be so large that it leads to a US- or Switzerland-like fiscal federalism. A “Hamiltonian moment“, when all EU member states decide to mutualize their debts and fiscal resources, is still faraway, and not even desirable while national preferences remain very different from one country to another in the EU.
A functional solution can be found between pure fiscal federalism and the current incomplete economic and monetary union. The challenges lying ahead, starting with climate change, are the opportunities to build this new setup for the provision of more EU “public goods”.
Therefore, an encompassing reform should combine:
(a) a simplification of the SGP, where debt-to-GDP ratio reduction pace is nationalized, and the main middle-term target is fixed by an expenditure rule while general escape clauses are examined by independent fiscal authorities, and
(b) a non-redistributive member-states-and-debt-financed central investment capacity, assessed as “long overdue” by the EFB, to help the EU transit to carbon-neutral economy.
Recent declarations of the German Finance Minister Christian Lindner and the French Economy Minister Bruno Le Maire suggest that Member States are already ready for a reform of the SGP focussing on the pace of debt-to-GDP ratio reduction, which would be a first step in curtailing the pro-austerity bias. Nevertheless, no official statement has been made either regarding a perpetuation of the NGEU’s Recovery and Resilience Facility as perennial investment capacity nor the building-up of a brand-new instrument exclusively focused on the ecological transition.
Discussions on the global revision of the EU Economic Governance will take place during the Summit for a New European Growth Model on March 10 and 11, with an official proposal of the Commission expected in June 2022 for an implementation in 2024. This process will show if indeed an encompassing reform is politically feasible.
In a post pandemic era and with several new reformist governments in power, there is potential for views to converge on building back better. In this climate, adopting a “carrot-and-stick” strategy seems more plausible than ever.
Putin’s decision yesterday is likely to further fuel the Russia-Ukraine conflict: The Russian president has recognized the self-proclaimed Donetsk and Luhansk People’s Republics in eastern Ukraine as independent states. This makes it possible to station Russian soldiers there. EU Commission President Ursula von der Leyen announced EU sanctions against Russia in response to the recognition of the Ukrainian territories. Ukraine had already wanted immediate punitive measures and received backing for this from the Baltic states. But some member states are calling for restraint. Sanctions should only be implemented if Russia actually attacks Ukraine – “but not before”, said a government spokesman in Berlin. Eric Bonse reports on the European discussion about the appropriate time for sanctions and gives an outlook on the planned punitive measures.
In early April, the EU Commission plans to present a draft regulation on the European Health Data Space (EHDS). Not much is known so far, but a call for tenders from the European Health and Digital Executive Agency gives a first insight into the plans for the European Health Data Space. The EU agency apparently has a consortium in mind to start work on a kind of beta version of the EHDS before the end of the year. A group of 16 partners, including one from Germany, led by the French Health Data Hub HDH, has applied for this tender. Eugenie Ankowitsch summarizes what tasks the group would face and how well the responsible partner in Germany is positioned.
The decision on tough economic sanctions against Russia is drawing closer. Following the European Council and the EU Commission, the EU foreign ministers also declared their readiness to impose punitive measures on Monday. They will be prepared when the moment comes, said High Representative of the European Union for Foreign Affairs Josep Borrell in Brussels.
However, there were differences of opinion on when would be the right moment for sanctions. Does it have to come to a “full” invasion of Ukraine first, as the US expects? Or is recognition of the two breakaway regions in eastern Ukraine enough? Russian President Vladimir Putin recognized the self-proclaimed Donetsk and Luhansk People’s Republics as independent states yesterday. State television shows him signing a decree to that effect.
EU Commission President Ursula von der Leyen said the European Union would respond with sanctions to Russia’s recognition of Ukrainian territories as independent regions. The USA also announced sanctions against Russia.
Referring to the announced recognition of the provinces, Borrell said, “We will respond to this with a strong and united front.” In the event of annexation of eastern Ukraine, the EU will respond with sanctions, the Spaniard said after the end of the meeting of foreign ministers in Brussels. However, there were also other opinions. Some countries hesitate, others demand haste.
Ukrainian Foreign Minister Dmytro Kuleba reiterated his country’s demand for immediate punitive measures against Russia. Not only political messages but concrete actions are expected, Kuleba said at the meeting of 27 EU foreign ministers in Brussels. “We believe that there are good and legitimate reasons to impose at least some sanctions.”
He received backing from the Baltic states. Lithuanian Foreign Minister Gabrielius Landsbergis said that there was already a Russian attack on Ukraine, and the EU had to react to that. Thus, one could think about punishing those who are responsible for misinformation about the Ukraine conflict.
Germany, Austria, and Ireland urged restraint. Sanctions should only be implemented if Russia actually attacks Ukraine – “but not before”, said a government spokesman in Berlin. Now it is a matter of returning to the negotiating table, stressed Foreign Minister Annalena Baerbock in Brussels.
“Sanctions are a reaction, a kind of punishment,” Austria’s chief diplomat Alexander Schallenberg said. “You can’t do that in advance, nor should you.” Irish Foreign Minister Simon Coveney advocated continuing to focus on diplomatic initiatives.
No decision was made on Monday. This would require a special meeting of the Council; because of the political and economic explosiveness, Brussels is even expecting an EU summit to be convened. At the last summit meeting last Thursday, there were still reservations about the sanctions.
Italy’s head of government Mario Draghi demanded that energy imports be exempted from possible sanctions. Austria’s Chancellor Karl Nehammer said that the economic consequences for EU countries should also be considered and that they should be helped if necessary. The EU Commission had also assured this, Nehammer said.
The risks and side effects are considerable – also for Germany. Meanwhile, it’s no longer just about the Nord Stream 2 Baltic Sea pipeline and gas supplies. EU Commission President Ursula von der Leyen said that Russia also wants to be cut off from the financial markets as well as hit all the goods the country needs “to modernize and diversify its economy”.
At the heart of the matter is an economic war – the EU wants to decisively weaken the Russian economy. All measures are closely coordinated with the US, emphasizes Ursula von der Leyen, who is preparing the sanctions package. But Washington could also go it alone – for example, in banning transactions in dollars, the world’s reserve currency.
Meanwhile, the French presidency is feverishly trying to avoid an escalation. At the initiative of President Emmanuel Macron, a summit between US President Joe Biden and Kremlin leader Vladimir Putin has been envisaged. The Kremlin in Moscow said there were no concrete plans for a summit yet. However, the heads of state could decide to arrange a telephone call or a meeting at any time.
A meeting of the Russian and US foreign ministers, Sergei Lavrov and Antony Blinken, is also planned for Thursday in Geneva. However, the recognition of Donetsk and Luhansk is likely to render these plans moot. With dpa
At the beginning of April, the EU Commission plans to present a draft regulation on the European Health Data Space (EHDS). So far, hardly any details have leaked out to the public. There are a few statements from interested organizations and the industry. But even these do not reveal more than their own wishes. But in the background, preparations are underway to establish the European Health Data Space.
In October, the European Health and Digital Executive Agency (HaDEA) published a call for proposals. The goal: a pilot project to develop an “EU infrastructure ecosystem for the secondary use of health data for research, policy and regulatory purposes”. This ecosystem is to be based on common standards and strategies to enable the integration of the currently fragmented national data systems.
The EU authority has in mind a consortium whose task is to build an IT infrastructure that connects the participating nodes and runs through concrete use cases in research. It will also examine the extent to which the infrastructure developed can be scaled across the Union. This would then be the backbone of the European Health Data Space.
At the end of January, a consortium of a total of 16 partners submitted its application documents. Among them are:
It also includes the main European health agencies EMA and ECDC, as well as the European Public Health Association (EUPHA) and the research networks Orphanet, Elixir, eBrains, and the pan-European infrastructure of national biobanking networks BBMRI-ERIC. The French health data agency Health Data Hub (HDH) leads the illustrious round.
As early as November 2021, Findata and the Health Data Hub, the first two centralized national health data agencies in Europe, signed a cooperation agreement (“Memorandum of Understanding”). The goal is to exchange health data securely and efficiently while respecting both the rights and freedoms of citizens and the FAIR principles (Findable, Accessible, Interoperable and Reusable).
The collaboration would focus on four topics: the development of metadata catalogs, best practices for data access and management, international collaboration, and the organization of joint communications.
The HDH is the French version of a one-stop shop for health data, similar to Findata. It provides public and industrial research with centralized access to data sources from a wide range of healthcare stakeholders. If the application is successful, HDH staff compile the datasets and provide secure access to the data in a dedicated online research environment. In line with the transparency principle of the GDPR, all projects are listed in a public register of the HDH.
With its leading role in the EHDS consortium, France apparently wants to further strengthen its position in the field of health. In the middle of last year, President Emmanuel Macron presented the health innovation plan “Plan Innovation Santé 2021-2030”. It aims to put France at the forefront of European health research. In the fall of 2021, the government also launched the “Digital Health” initiative. With this, France aims to become the global market leader in digital health by 2025. The package is to be endowed with a total of €650 million.
However, one of the biggest challenges for the consortium is likely to be the divergent degrees of development among the partners. While the Health Data Hub and, above all, Findata are among the digital model students and pioneers, the German Research Data Center (FDZ), for example, is still in its infancy.
The FDZ is located at the Federal Institute for Drugs and Medical Devices (BfArM). Initially, the center originated from the former data processing center of the German Institute of Medical Documentation and Information (DIMDI), which was incorporated into the BfArM in 2020. The legislature initiated the FDZ in 2019 through the Digital Care Act. The Data Transparency Ordinance (DaTraV) concretizes these legal regulations.
But unlike Findata and HDH, which were also enabled by 2019 legislation, the research data center is still under construction. Currently, according to the BfArM, the legal, technical, personnel, and organizational measures are being defined and implemented. Applications for data use can probably be submitted in the fall of 2022.
The range of tasks of the FDZ will be expanded compared to the former data processing center. The main innovations include virtual analysis rooms for researchers. The new environment will also be scalable and able to process a higher number of big data analyses. A powerful data center with correspondingly high-performance hardware is also to be built.
Apart from the varying degrees of development, the consortium’s task is also anything but trivial in other respects. Based on selected specific use cases, for example, an operational framework for the secondary use of healthcare data between different nodes is to be developed. This includes common metadata discovery, a common data access application, and the implementation of a data model to enable cross-border data use and transfer.
However, it is not enough to create the technical requirements. According to the call for proposals, concrete use cases must be worked through: starting with the conception, data determination, validation of the data and its availability, delivery, and ending with data processing and analysis. At the end of the project’s duration, HaDEA envisions nothing less than a definition of the technical, legal, and administrative requirements, as well as the architecture and eventual specifications for the IT and data infrastructure that will enable EU-wide reuse of health data.
The decision on the winner of the tender is to be made in the coming months. The winning consortium will start work in September 2022 for a maximum of two years. The EU is funding the pilot project with €5 million. However, whether their consortium actually wins the tender will not give the organizers from France sleepless nights.
According to the HDH, there is currently no information about possible competitors. However, the company does not expect any serious competition. After all, the HDH provides the majority of national health data platforms in Europe as well as important research infrastructures and EU agencies.
Many voices, in and out of the EU, are calling for a change of the Economic Governance of the EU. Among them, the European Fiscal Board (EFB) is pleading in favor of a modification of the fiscal rules of the Stability and Growth Pact (SGP), assessed to be too complex and poorly adapted to national contexts and specificities. Besides, the IMF, the World Bank, and the European Central Bank also consider that it is necessary to revise the SGP’s framework once again, despite prior revisions in 2005, 2011, 2012, and 2015.
In this context, on October 19th, 2021, the European Commission relaunched its February 2020 consultation on the Economic Governance Review. The strategy announced by the Commission entails providing an adapted response to both the structural challenges already present before the crisis (rapidly aging population, expected reduced labor supply and low growth potential in the EU, lagging digital transformation, climate change) and the consequences of the crisis (increased macroeconomic and public finance divergences in the EU).
Is this review – supported by an institutional consensus – really justified? An EU Economic Governance reform is indeed needed due to obsolete fiscal rules and a macroeconomic environment that has dramatically changed.
First, current SGP rules are complex and not even efficient. They did not allow for debt-to-GDP ratio reduction at the EU level despite national structural reforms during the last decade. Moreover, they amplify fiscal space divergences. These divergences currently lead to an increased risk of sovereign debt default of highly indebted European countries, which creates new tensions in the euro area.
When the Pandemic Emergency Purchase program ends in 2022, this heightened risk could motivate a new ECB intervention on sovereign markets to control spreads. Thus, perpetuating fiscal dominance, with an inflationary effect expected in the short and middle term. Finally, levels of public investments have been declining for many years due to fiscal constraints, which calls into question growth and economic sovereignty in the EU.
Given this delicate situation, can debt-to-GDP ratio reduction and economic growth enhancement be achieved simultaneously? Probably so, by pursuing a “Carrot-and-Stick” strategy.
First, launching a serious debt-to-GDP ratio reduction program requires maintaining fiscal rules. The idea of only relying on ex-post standards – like those promoted by Blanchard, Leandro, and Zettelmeyer – is not appropriate because common rules ensure “fairness” between member states that all belong to the same Union. This implies they must follow the same set of rules to guarantee a Union between equals instead of the untenable-over-the-long-term position of a Union between privileged and less privileged.
Besides, even if member states do not comply to the SGP rules all the time, empirical investigations have shown that such rules do shift public deficits towards debt-to-GDP ratio reduction and fiscal sustainability. In contrast, “market discipline” has proven to be too unpredictable and volatile in helping states maintaining fiscal discipline.
Regarding their design, fiscal rules should be simpler than the current ones. They should rely on potential output growth as a forward-looking element to compute national expenditure ceilings, which could be done on a multi-annual basis to provide more fiscal predictability, enforceability, and credibility – sending a signal of mid-term fiscal discipline to markets. Furthermore, the assessment of fiscal situations and escape clauses should be entrusted to a network of national independent fiscal authorities coordinated by a supervising agency at the European level.
However, whatever the changes, the SGP fiscal rules will remain a “stick” focused on debt-to-GDP ratio reduction, given the macroeconomic context.
Policymakers should instead focus most of their energy on a “carrot”: a perennial fiscal instrument, preferably a central fiscal capacity, which would help the EU transit to carbon-neutrality in 2050 – by bolstering the private sector as it struggles to engage in this transition and needs public support for risky and not necessarily very profitable investments. These public funds could leverage private investments like the current NGEU, or like the Juncker Plan did a few years ago. Furthermore, they would incentivize member states to conduct structural reforms due to their conditionality to structural reforms.
However, a central fiscal capacity should not be so large that it leads to a US- or Switzerland-like fiscal federalism. A “Hamiltonian moment“, when all EU member states decide to mutualize their debts and fiscal resources, is still faraway, and not even desirable while national preferences remain very different from one country to another in the EU.
A functional solution can be found between pure fiscal federalism and the current incomplete economic and monetary union. The challenges lying ahead, starting with climate change, are the opportunities to build this new setup for the provision of more EU “public goods”.
Therefore, an encompassing reform should combine:
(a) a simplification of the SGP, where debt-to-GDP ratio reduction pace is nationalized, and the main middle-term target is fixed by an expenditure rule while general escape clauses are examined by independent fiscal authorities, and
(b) a non-redistributive member-states-and-debt-financed central investment capacity, assessed as “long overdue” by the EFB, to help the EU transit to carbon-neutral economy.
Recent declarations of the German Finance Minister Christian Lindner and the French Economy Minister Bruno Le Maire suggest that Member States are already ready for a reform of the SGP focussing on the pace of debt-to-GDP ratio reduction, which would be a first step in curtailing the pro-austerity bias. Nevertheless, no official statement has been made either regarding a perpetuation of the NGEU’s Recovery and Resilience Facility as perennial investment capacity nor the building-up of a brand-new instrument exclusively focused on the ecological transition.
Discussions on the global revision of the EU Economic Governance will take place during the Summit for a New European Growth Model on March 10 and 11, with an official proposal of the Commission expected in June 2022 for an implementation in 2024. This process will show if indeed an encompassing reform is politically feasible.
In a post pandemic era and with several new reformist governments in power, there is potential for views to converge on building back better. In this climate, adopting a “carrot-and-stick” strategy seems more plausible than ever.
