The European Fiscal Board Must Continue to Develop Itself

It would be fair to say that the European Union and its institutions do not currently enjoy a reputation for making and implementing decisions quickly. When it came to the decision to create a European Fiscal Board (EFB) back in October 2015, however, the European Commission was relatively quick off the mark, with the EFB coming into operation just one year later. The responsibilities of this new advisory board include monitoring the implementation of the Fiscal Compact, working closely with the individual national fiscal boards and briefing the European Commission on the current state and future development of fiscal policy. But is the EFB carrying out its duties as independently as initially intended? Has the board proved itself effective in the first few months following its founding, or is it just yet another cog in the bureaucratic machine in Brussels? How significant a role should and indeed must the EFB assume in the future? These were the main questions up for discussion at the ZEW lunch debate on 27 April 2017 at the Representation of the State of Baden-Württemberg to the EU in Brussels.

In his opening presentation, Professor Friedrich Heinemann, head of the Research Department "Corporate Taxation and Public Finance" at the Centre for European Economic Research (ZEW) in Mannheim, emphasised the EFB’s great potential. In its capacity as a watchdog, the board represents an opportunity to make the EU’s complex fiscal guidelines more practically oriented and in touch with ordinary European citizens. However, according to current ZEW research findings and the EFB’s international research partners, there are still some areas for improvement.

Specifically, the EFB needs to up its game in terms of its independence from the European Commission as well in the frequency, transparency and communication of its reports."The EFB should maintain an independent yet close relationship with the European Parliament and also actively address the public via the media," explained Heinemann. Though the EFB was conceived as a "watchdogfor another watchdog" to continuously monitor the effectiveness of the Stability and Growth Pact (SGP), it is perfectly conceivable that in the long term the EFB will be tasked with monitoring the EU’s budgetary decisions as well. "From an academic perspective, it is preferable that the EFB succeeds in creating more neutrality in fiscal matters," Heinemann explained.

"An institution in an evolving process"

For the following debate, the ZEW economist was joined on the podium by EFB chair Professor Niels Thygesen as well as Xavier Debrun, PhD, head of the research department at the International Monetary Fund (IMF). The debate was moderated by economics journalist Maithreyi Seetharaman in front of an audience of around 60 representatives from the European Commission and the European Parliament as well as from private companies and interest groups.

Xavier Debrun began by highlighting the fact that the EFB is still too young an institution for its potential to have fully developed. Given the turbulent political climate it was born into, with debate still raging on over the power and responsibility politics should have over the public purse, the creation of the EFB is a step in the right direction. "But I would like to see it in an evolving process and achieving more of the things it is actually in the position to do," said the IMF researcher. Debrun then listed three essential points for the board’s development: The EFB must be able to operate independently of the European Commission, have full control over staffing issues, and pursue an aggressive communications strategy making full use of the media. The EFB could eventually assume a key role in preventing conflict at a number of levels: "The institution must provide information symmetry both horizontally between the various national fiscal councils and vertically between the EU and the Member States," said Debrun.

"Budgetary issues are not our natural habitat"

Niels Thygesen found himself in the position of explaining the role of his institution: "Our focus is on ensuring the sustainable development of both European fiscal policy as a whole as well as the individual Member States." To this end, the EFB is in constant contact with the individual fiscal councils of the European nations and a great number of national governments are already beginning to show interest in the work of the council of five experts.With a staff consisting of six other employees, the board does not feel in any way compelled to fall in line with the position put forward by the European Commission. "We have access to all the relevant information we need and can therefore carry out well-founded, substantial analyses," said Thygesen. With regards to the EU’s budget, there is already a monitoring instrument in place, namely the High Level Group on Own Resources, also known as the Monti Group. "Budgetary issues are not our natural habitat," explained Thygesen. However, he did recognise that the EFB has to this point been equipped with only limited resources.

Moderator Maithreyi Seetharaman also let the audience contribute to the debate on the podium with their own questions: To what extent can the EFB contribute to raising the debate surrounding European fiscal policy to a more objective level and keeping it there? How does communicating with a large number of national fiscal boards work on a day-to-day basis? What level of influence can the EFB exert when it comes to managing the instruments of the SGP with greater flexibility? These questions prove that the debate surrounding the development and future of the EFB is far from over.