Enhancing the Ability of Fiscal Policy to Ensure Macroeconomic Stabilisation

The section examines the scope of macroeconomic stabilisation in the EU fiscal rules, drawing on empirical evidence of the pro-cyclicality of national fiscal policies. It focuses on the period following the adoption of the Six- and Two-Pack reforms (2011-2013). The findings show that fiscal loosening in good economic times and fiscal prudence in bad times have driven pro-cyclical fiscal policy, both at the stage of fiscal planning and ex post with subsequent slippages. Successive innovations in the EU fiscal framework have sought to reduce this observed pro-cyclicality by encouraging Member States to build buffers in good economic times so that automatic stabilisers can operate fully in bad economic times. At the same time and despite their counter-cyclical design, the increased complexity of the EU fiscal rules has reduced predictability and contributed to weak compliance in many Member States, which has limited their ability to conduct counter-cyclical fiscal policies. Based on these findings and the economic literature, the section highlights some elements that could enhance counter-cyclicality in the EU fiscal rules in both normal and exceptional circumstances.