Assessment of the EU fiscal framework: Updating estimates of the cost of non Europe

Without effective coordination of fiscal policies and active supervision of external and internal imbalances, significant negative spillover effects can occur between Member States participating in economic and monetary union and across the EU more widely. A credible fiscal framework and related rules should therefore be designed and enforced, to ensure that Member States pursue sound public finance policies that keep deficits within the range where financing can be secured. This approach, coordinated with an appropriate monetary policy, could also limit the risk of persistently higher inflation, instability, and the materialisation of macro-financial risks. Confirming that there is still a need for better fiscal policy coordination among Member States and for a deeper EU fiscal framework, this study emphasises that these two things could lead to substantial benefits. More specifically, based on the results of a meta-regression analysis, estimates indicate that well-designed fiscal rules could generate deficit reduction of between 1.8 % and 1.3 % of gross domestic product. This would correspond to potential additional fiscal space of approximately €220 billion per year for the EU as whole.