Friday, September 18, 2020
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EU begins rethinking fiscal rules as economy slows

The European Union is bracing for a review of its strict fiscal rules as the bloc’s economy slows, while monetary stimulus is seen as being close to its limits, according to an EU document and officials.
The periodic assessment is dictated by EU rules but it comes at a time when many are questioning the rationale of budget regulations, known as the Stability and Growth Pact, that were speedily overhauled in the wake of Europe’s 2010-2012 debt crisis.
“While the original rules had the sole objective of ensuring sound and sustainable government finances, increasing emphasis is being placed by some on the role of fiscal policy in economic stabilisation,” says a document prepared by the Finnish presidency of the EU.
Separately, on Tuesday the president-designate of the EU Commission, Ursula von der Leyen, assigned the economic portfolio in the new executive to Italy’s leftist former prime minister Paolo Gentiloni, in a move seen by some observers as a step towards fiscal loosening.
The Finnish internal document, dated Sept. 9 and reviewed by Reuters, will orientate a debate on the reform of fiscal rules which EU finance ministers will hold in Helsinki on Saturday, according to the meeting’s agenda.
Finland, which has traditionally supported a rigid interpretation of the stability pact, conceded that the role of the euro zone’s fiscal policy to support the economy is increasingly seen as crucial, also because monetary policy is perceived “as more and more constrained”.