EU Commission Needs a More Effective Fiscal Watchdog

In the recent past, the credibility of the Stability and Growth Pact (SGP)
has increasingly suffered from the European Commission's broad
interpretation of SGP regulations. Up until now, political forbearance has
prevented sanctions from being imposed according to the rules. The European
Fiscal Board (EFB), which was set up by the EU Commission in 2016, offers
opportunities for improvement. In cooperation with international research
partners, ZEW investigated how the EFB functions and made proposals how to
strengthen the EFB in its role as an impartial counterpart to the European
Commission. Today, these proposals were presented at the ZEW Lunch Debate
entitled "Making the Most of the European Fiscal Board" in Brussels.

"When it comes to fiscal surveillance of the Member States, the EU
Commission is increasingly behaving like a judge that is sympathetic to the
defendant's cause," says Professor Friedrich Heinemann, head of ZEW's
Research Department "Corporate Taxation and Public Finance" and leader of
the project, summarising the core of the issue. Indeed, the EU Commission
has recently been rather generous in terms of deadline extensions regarding
government deficit reductions in many eurozone countries. Against this
background, an independent fiscal council provides a great opportunity. An
institution such as the EFB would not have any decision-making powers,
explains Heinemann. Thanks to its neutrality and credibility, it could,
however, provide guidance for the media and the general public as to
whether the EU Commission is overstepping its scope of legal
interpretation. This would also increase public awareness and exert
pressure on the EU Commission.

In its current form, however, the EFB still lacks necessary elements to
successfully assume its role as a fiscal watchdog, the researchers explain.
The authors of the study are therefore suggesting a number of reforms
which need to be implemented: "From an organisational point of view, the
EFB needs to run independently from the EU Commission," proposes Friedrich
Heinemann. At the moment, the board indeed consists of five independent and
distinguished researchers. The remaining staff is, however, chosen from
Commission services. The authors of the study fear that this way no solid
basis for a truly independent institution is provided. Furthermore, the
EFB's resources are fairly limited. In its current form, the EFB's task
merely consists in publishing a report once a year and producing fiscal
analyses for the EU Commission upon request. "Should the EFB really only
confine itself to publishing those annual reports, and not inform the
public on the Commission's decisions in an unbiased and critical manner,
this institution will most likely prove utterly ineffective," concludes
Friedrich Heinemann.

The policy brief on "Making the Most of the European Fiscal Board" is
available for download at:
http://ftp.zew.de/pub/zew-docs/policybrief/en/pb03-17.pdf

For further information please contact:
Prof. Dr. Friedrich Heinemann, Phone +49(0)621/1235-149, E-mail
heinemann@zew.de