Partners in Dialogue
27/02/12
"The Challenge of Designing Budget Rules: between Credibility and Flexibility"
In 2003, following a popular vote, Switzerland introduced in its Constitution a rule to limit federal expenditure. Likewise, nearly all of the Swiss Cantons - the earliest in 1929 – have put in place their own version of the so-called “debt brake”. Many of these have proven to be powerful instruments for controlling the dynamics of expenditure, smoothing out their fiscal balance over the economic cycle and limiting the issuance of debt to sustainable levels.
As a result of the new Treaty on Stability, Coordination and Governance in the Economic and Monetary Union, many EU Member States will soon face the challenge of putting a “balanced budget rule” in place themselves. While the Treaty stipulates the fiscal policy principles to comply with, it lets the Member States decide how to design their balanced budget rule. In the end, much depends on whether the rules they choose will credibly limit excessive government spending or hinder necessary government investment for growth.
Join us to discuss the introduction of a balanced budget rule in the EU and its impact on the markets’ trust in the sustainability of sovereign debt. How could credible and flexible fiscal rules be designed and what major pitfalls should be avoided? What institutional mechanisms are there to ensure credibility? What consequences for the budget are to be expected and how can political support be generated?
Click here to access the background information document.
