Covid Shows That Europe’s Fiscal Rules Are Outdated
Without a new fiscal regime, the bloc’s economic wounds may take far longer to heal.
Ursula von der Leyen, president of the European Commission, looks ahead.
Photographer: Thierry Monasse/Getty Images EuropeOne upshot of Covid-19 has been closer coordination between monetary and fiscal powers. This has led to a revolution in macroeconomic policy — one that countries should continue building upon. Just as central banks have been rethinking their frameworks, there is a strong case for governments to similarly reconsider their approach to fiscal policy.
Europe now has the perfect opportunity to do so: The stringent rules of the European Stability and Growth Pact, which limits the fiscal policies of euro-area member states, are suspended until 2022. This gives the bloc time to establish a new fiscal regime that can both stabilize economic activity and address long-term challenges such as climate change.