EU Commission Needs a More Effective Fiscal Watchdog

In the recent past, the credibility of the Stability and Growth Pact (SGP) has increasingly suffered from the European Commission's broad interpretation of SGP regulations. Up until now, political forbearance has prevented sanctions from being imposed according to the rules. The European Fiscal Board (EFB), which was set up by the EU Commission in 2016, offers opportunities for improvement. In cooperation with international research partners, the Centre for European Economic Research (ZEW), Mannheim, investigated how the EFB functions and made proposals how to strengthen the EFB in its role as an impartial counterpart to the European Commission. Today, these proposals were presented at the ZEW Lunch Debate entitled "Making the Most of the European Fiscal Board" in Brussels.

"When it comes to fiscal surveillance of the Member States, the EU Commission is increasingly behaving like a judge that is sympathetic to the defendant's cause," says Professor Friedrich Heinemann, head of ZEW's Research Department "Corporate Taxation and Public Finance" and leader of the project, summarising the core of the issue. Indeed, the EU Commission has recently been rather generous in terms of deadline extensions regarding government deficit reductions in many eurozone countries. Against this background, an independent fiscal council provides a great opportunity. An institution such as the EFB would not have any decision-making powers, explains Heinemann. Thanks to its neutrality and credibility, it could, however, provide guidance for the media and the general public as to whether the EU Commission is overstepping its scope of legal interpretation. This would also increase public awareness and exert pressure on the EU Commission.

In its current form, however, the EFB still lacks necessary elements to successfully assume its role as a fiscal watchdog, the researchers explain. The authors of the study are therefore suggesting a number of reforms which need to be implemented: "From an organisational point of view, the EFB needs to run independently from the EU Commission," proposes Friedrich Heinemann. At the moment, the board indeed consists of five independent and distinguished researchers. The remaining staff is, however, chosen from Commission services. The authors of the study fear that this way no solid basis for a truly independent institution is provided. Furthermore, the EFB's resources are fairly limited. In its current form, the EFB's task merely consists in publishing a report once a year and producing fiscal analyses for the EU Commission upon request. "Should the EFB really only confine itself to publishing those annual reports, and not inform the public on the Commission's decisions in an unbiased and critical manner, this institution will most likely prove utterly ineffective," concludes Friedrich Heinemann.

For further information please contact

Prof. Dr. Friedrich Heinemann, Phone +49(0)621/1235-149, E-mail heinemann@zew.de