25th Sep 2018


Deficit ceilings are not political toys

  • Stretching deficit ceilings has implications for fiscal scrutiny and even for democracy within the EU (Photo: Images_of_Money)

On 27 October, EUObserver reported on European Commission president Jean-Claude Juncker’s plan to correct deficit ceilings for member states’ spending on refugees.

In his speech for the European Parliament, Juncker promised to stretch the 3 percent deficit ceiling – as established in the Stability and Growth Pact (SGP) – for countries which make a “huge effort” sheltering immigrants.

Read and decide

Join EUobserver today

Support quality EU news

Get instant access to all articles — and 18 year's of archives. 30 days free trial.

... or join as a group

Although this measure might work to stimulate particular expenditures, it also has implications for fiscal scrutiny, enforcement of deficit ceilings and even for democracy within the EU.

Juncker’s envisaged “flexibility in the SGP” gives rise to three problems.

Creative accounting

Juncker's plan will trigger and increase creative accounting regarding public finances. Since the first fiscal rules were established in the Maastricht Treaty, EU member states intensively tried to find ways around the ceilings.

Many examples can be found of this opportunistic behavior. To meet the euro criterion, France decreased its deficit level artificially by 0.5% through a one-time payment from a public enterprise in 1997; Portugal did not disclose €7.4 billion of subsidies in 2002 to avoid an excessive deficit; and euro-area governments report overoptimistic economic growth expectations in their draft budgetary plans to decrease their structural deficits.

Governments use the complexity of public finances, budgetary opaqueness, and their informational advantage to avoid measures, and Juncker’s plan provides the governments with a new place to hide expenditures.

Juncker stated that governments need to prove that they are affected by the costs of the refugee policy in order to receive the leeway. Regarding the calibration of expenditures, member states have a clear advantage over the monitoring Commission.

Who controls how local officials spend “refugee money”?

Democratic deficit

The plan creates a democratic deficit through undermining the regular procedures of EU policy making.

Since Juncker’s plan stimulates particular expenditures through relaxing fiscal ceilings, the ordinary legislative procedure is ignored and the European Parliament (EP) circumvented.

In fact, Juncker’s plan uses the governments’ difficulties to meet deficit ceilings and the present threat of fiscal sanctions to enforce domestic policy making. With that, Juncker chooses the corrective arm of the SGP as a political arena in which just the Commission and the Council of Ministers play a role.

Under the corrective arm, the Commission monitors the deficit levels and proposes austerity measures when it assesses deficits as excessive. Then the Council of Ministers must approve the existence of an excessive deficit and the proposed measures.

Those acts (decisions rather than regulations or directives) are not only relieved from parliamentary involvement, they are also exempt from the EU transparency rules keeping the public uninformed.

The fiscal exemptions under Juncker’s plan are thus a private party between the Commission and ECOFIN in which policy is made through playing with stringency.

What’s next?

One cannot foresee how this political role of fiscal ceilings will develop in the future. Other commissioners will try to use this tool to enforce domestic policies in their fields as well.

Implementing Juncker´s plan a first time sets a precedent for other applications, while application and repetition of the plan has clear negative consequences. Using the exemptions frequently induces countries to anticipate the fiscal exemptions in their budgeting which increases the deficit bias. Moreover, not every policy is suitable for the idea.

At this moment, Juncker's idea entails the refugee crisis which requires additional and ad-hoc expenditures. But what if the idea is applied or rather continues expenditures as infrastructural or educational investments.

Every year governments make decisions regarding these expenditures and speculating on trailing exemptions is undesirable but triggered through repetition.

Juncker’s plan might be an effective tool to mobilise funds and push them in a certain direction, but it unfortunately has some fiscal and democratic side effects.

It is a good idea for crisis management but undesirable in the long run. Deficit ceilings are not political toys designed to be stretched.

Sebastiaan Wijsman is a researcher in Political Economy at the University of Leuven

No chance of meeting EU renewable goals if infrastructure neglected

Following the 2030 renewable target of 32 percent, chair of the European Parliament's environment committee Adina Valean argues in order to reach our climate and energy goals, we need both public and private investment over the next decade and beyond.

News in Brief

  1. ECB's Draghi set to clarify role in secretive G30 group
  2. Half of EU states at risk of missing recycling target
  3. Commission refers Poland to EU top court over rule of law
  4. Open Society Foundation takes Hungary to court
  5. EU court asked to rule on halting Brexit
  6. EU threatens Switzerland on stock trading
  7. Italy's new basic wage restricted to Italians
  8. UK tycoon offers to create pro-Brexit party

Will the centre-right stand up for EU values?

Time for Christian Democrats in the EP to show where they stand on Hungary and on the EU's founding principles, say Human Rights Watch and Amnesty International in a joint text.

Europe needs more modern leadership

If Europe wants to be a global leader, our political leadership has to change dramatically. Power needs a new face in Europe, and it needs to get legitimacy from the people, argues liberal MEP Sophie in 't Veld.

Stakeholders' Highlights

  1. NORDIC COUNCIL OF MINISTERSThe vital bioeconomy. New issue of “Sustainable Growth the Nordic Way” out now
  2. NORDIC COUNCIL OF MINISTERSThe Nordic gender effect goes international
  3. NORDIC COUNCIL OF MINISTERSPaula Lehtomaki from Finland elected as the Council's first female Secretary General
  4. NORDIC COUNCIL OF MINISTERSNordic design sets the stage at COP24, running a competition for sustainable chairs.
  5. Counter BalanceIn Kenya, a motorway funded by the European Investment Bank runs over roadside dwellers
  6. ACCACompany Law Package: Making the Best of Digital and Cross Border Mobility,
  7. IPHRCivil Society Worried About Shortcomings in EU-Kyrgyzstan Human Rights Dialogue
  8. UNESDAThe European Soft Drinks Industry Supports over 1.7 Million Jobs
  9. Mission of China to the EUJointly Building Belt and Road Initiative Leads to a Better Future for All
  10. IPHRCivil society asks PACE to appoint Rapporteur to probe issue of political prisoners in Azerbaijan
  11. ACCASocial Mobility – How Can We Increase Opportunities Through Training and Education?
  12. Nordic Council of MinistersEnergy Solutions for a Greener Tomorrow

Latest News

  1. Missing signature gaffe for Azerbaijan gas pipeline
  2. Every major city in Europe is getting warmer
  3. No chance of meeting EU renewable goals if infrastructure neglected
  4. Brexit and MEPs expenses in the spotlight This WEEK
  5. Wake-up call on European Day Against Islamophobia
  6. Sound of discord at 'Sound of Music' Salzburg summit
  7. Salzburg summit presses for bigger Frontex mandate
  8. UK's post-Brexit plan 'will not work', EU says

Stakeholders' Highlights

  1. UNICEFWhat Kind of Europe Do Children Want? Unicef & Eurochild Launch Survey on the Europe Kids Want
  2. Nordic Council of MinistersNordic Countries Take a Stand for Climate-Smart Energy Solutions
  3. Mission of China to the EUChina: Work Together for a Better Globalisation
  4. Nordic Council of MinistersNordics Could Be First Carbon-Negative Region in World
  5. European Federation of Allergy and AirwaysLife Is Possible for Patients with Severe Asthma
  6. PKEE - Polish Energy AssociationCommon-Sense Approach Needed for EU Energy Reform
  7. Nordic Council of MinistersNordic Region to Lead in Developing and Rolling Out 5G Network
  8. Mission of China to the EUChina-EU Economic and Trade Relations Enjoy a Bright Future
  9. ACCAEmpowering Businesses to Engage with Sustainable Finance and the SDGs
  10. Nordic Council of MinistersCooperation in Nordic Electricity Market Considered World Class Model
  11. FIFAGreen Stadiums at the 2018 Fifa World Cup
  12. Mission of China to the EUChina and EU Work Together to Promote Sustainable Development

Join EUobserver

Support quality EU news

Join us