The EU fiscal rules – a solution or a compromise?

On 13 February 2025, the NAOF’s fiscal policy monitoring function organised for the second time a seminar focused on the EU fiscal rules. This year, the experts assessed the impacts of the completed reform of the fiscal rules, while the 2021 seminar focused on the development needs of the rules.

The discussion examined whether Member States’ debt sustainability will be strengthened and whether the rules have been simplified – or whether the reform will remain merely a compromise without significant changes. Not only were the impacts of the reform assessed, but the aim was also to stimulate a broader societal discussion on the significance of fiscal rules.

Debt sustainability at the core of the reform – are the new rules sufficient?

Matthias Strifler, Economist at the NAOF’s fiscal policy monitoring function, introduced the topic, and presentations were given by Jaakko Kiander (Keva), Essi Eerola (Bank of Finland), Päivi Leino-Sandberg (University of Helsinki) and Seija Ilmakunnas (Economic Policy Council). The speakers discussed both the opportunities offered by the reform and the challenges associated with it.

Debt sustainability requires Member States to take active action

The experts pointed out that the new country-specific debt sustainability analysis provides a more accurate picture of the situation in Member States, but debt management requires concrete adjustment measures. It was estimated that in the case of Finland, stabilising the debt ratio will require an additional fiscal adjustment of around EUR 4.5 billion in the coming years.

The new fiscal framework – simpler or more complex?

Although the reform aimed to clarify the fiscal framework, the speakers raised concerns that the underlying debt sustainability analysis and assumptions are still rather complex. The introduction of the net expenditure indicator may facilitate the monitoring of the rules, but it is difficult for decision-makers and citizens to fully understand the impact of the rules. This may weaken the commitment to the rules and compliance with them.

The EU’s role strengthens – is the national decision-making power diminishing?

Member States shall draw up national plans, which will be evaluated by the Commission and approved by the Council. This sparked a discussion about the extent to which decision-making power is shifting from national actors to the EU level. Concerns were raised about the fact that the process of drawing up the plans is technical and carried out behind closed doors, which may undermine transparency and democratic oversight.

There was no unanimity among the speakers on the long-term effects of the reform, but a clear message emerged from the discussion: the success of the new framework depends on its implementation. If Member States commit to measures that promote debt sustainability and if the rules are implemented consistently, the reform can stabilise fiscal policy. On the other hand, if there are insufficient incentives for compliance with the rules, it is possible that debt sustainability remains on paper only.

The new debt rules – a step forward?

The panel discussion delved into the question raised in the introductory presentation: Are the EU’s reformed debt rules a step forward? Four experts – Vesa Vihriälä, Leena Mörttinen, Päivi Puonti and Pentti Pikkarainen – discussed the effects of the reform on the basis of predefined themes.

Debt sustainability: The new analysis framework brings accuracy, but will it solve the basic problem?

The kernel of the reform is the country-specific debt sustainability analysis, which aims to take the economic situation in each Member State into consideration more realistically. According to the panellists, this is a step in the right direction, but the high level of debt ratios and disruptions in market mechanisms will not disappear with the reform of the rules. Although the analysis will be refined, it remains uncertain whether the rules are sufficient to steer Member States to a sustainable fiscal path – and if not, what means the EU has to address the situation.

Simplicity of the rules: Are the underlying calculations too complex?

The aim was to simplify the fiscal framework, but in reality, political compromises have made it increasingly complex. New elements, such as debt sustainability safeguards, have been added to the framework as a result of negotiations, which has increased the technical complexity. The rules have not been simplified – in fact, in some respects, they have even become more complex.

Market discipline and the role of the central bank: Has monetary policy distorted fiscal incentives?

The panellists assessed that the prolonged low-interest-rate environment and the central bank’s market operations have reduced the pressure on governments to ensure debt sustainability. Now that central bank support measures are scaled down, it is unclear how the markets will react and whether the new rules will withstand a real test. Governments should have prepared for tightening financing conditions earlier, but the low interest rates have delayed the adjustment.

Debt sustainability advances, but risks do not disappear

The reformed rules provide a more detailed debt sustainability analysis and increase flexibility, but their real impact will depend on political commitment and practical implementation. Without market discipline and consistent compliance with the rules, the reform may prove to be ineffective.

The use of independent fiscal institutions (IFIs) may strengthen Member States’ fiscal sustainability, even though the technical complexity of the fiscal framework and political compromises continue to challenge its transparency and commitment to it.

Although the framework provides more detailed analysis and increased flexibility, its success depends on implementation and political commitment. Going forward, the NAOF’s fiscal policy monitoring function will assess how Finland complies with the EU’s new fiscal rules and how they affect the national fiscal policy.

It remains to be seen whether the reform is a real step towards debt sustainability or just a compromise without major changes.