First published on
15 November 2017

On 15 November 2017, the European Fiscal Board (EFB) published its first annual report. The report reviews the way the EU fiscal framework has been implemented, highlighting imperfections and scope for improvement. At the same time it concludes that the framework contributed to the stability of the euro area. In exceptional times when risks to the sustainability of public finances in several euro area Member States were coupled with risks of deflation, the short-run response to explore the flexibility of the Stability and Growth Pact (SGP) made sense though it raised concerns about the integrity of the fiscal framework. Looking ahead, the challenge will be to adapt the fiscal framework to the return of normal and good economic times, while building the buffers necessary to withstand future crises.

The EFB's first report provides a comprehensive and independent assessment of how the SGP has been applied in the recent past. The focus is on the last complete surveillance cycle, 2016. The assessment shows how sizable compliance gaps in budgetary plans of euro area countries had largely disappeared ex post, as Member States benefited from existing degrees of discretion and greater flexibility under the SGP. Although nominal GDP growth had largely come in as expected or even lower, only few euro area countries were found to significantly deviate from the required fiscal adjustment. Those who did deviate were granted additional time and sanctions were cancelled.

Thanks to the additional margins of flexibility under the SGP, the fiscal stance for the euro area was broadly appropriate in 2016, though not its distribution across countries. From a euro-area perspective, the general orientation of fiscal policy was loose or looser than warranted in countries where the sustainability analysis was less favourable; it was restrictive or more restrictive than warranted in countries where the sustainability analysis did not indicate particular constraints.

Successive reforms and additional elements of flexibility have increased the complexity of the SGP. The instances where judgment and discretion play a crucial role have multiplied, raising questions of transparency and equal treatment. While simple rules can be blunt and are equally strict or lax for everyone, discretion cannot guarantee the same degree of acumen across all cases. The growing importance of judgment and discretion also heightens frictions between different institutional players at the EU level over who ultimately sets the course within the range of options created by discretion. To be clear, discretion as such is not the issue. What matters is how discretion is exercised: on the basis of economic reflections or other considerations.

Based on its assessment of how the SGP was applied, the EFB puts forward a number of proposals. The proposals aim at (i) creating incentives for governments to take advantage of good economic times to improve public finances, (ii) enhancing the enforcement of the rules, (iii) strengthening the effectiveness of national fiscal councils, (iv) encouraging Member States to implement structural reforms to strengthen economic resilience, and (v) simplifying the SGP while safeguarding enough flexibility with independent judgment.

The EFB also contributes to the debate on how to deepen the Economic and Monetary Union. It is of the view that, under certain conditions, a centralised fiscal instrument would add stability to the euro area in times when monetary policy reaches its limits. The option of implementing an investment protection scheme appears in the short run to be superior to the alternatives.


The European Fiscal Board (EFB) is an independent body mandated to advise the European Commission on the overall direction of fiscal policy of the euro area and to evaluate how the EU fiscal governance framework is executed. It was formally established end 2015 and began operating shortly after its members were appointed in October 2016.

The annual report published today documents the work of the European Fiscal Board (EFB) since its appointment in October 2016. It offers an independent view of fiscal policy surveillance and coordination in the euro area. The report's content and structure are based on the main areas of responsibility set out in the Commission Decision (EU) 2015/1937 establishing the EFB. Firstly, it provides an evaluation of the implementation of the EU's fiscal framework. Secondly, it reviews and assesses the fiscal stance for the euro area as a whole and the national fiscal stances. Thirdly, it takes a look at national fiscal councils with a view to identifying aspects of best practice. Finally, the report also puts forward a number of suggestions on the future evolution of the EU's fiscal framework.


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