With the European Green Deal the EU has set itself an ambitious agenda to transform its economy. Over the course of the next 30 years the EU wants to transition to a green economy that respects planetary boundaries and provides decent jobs and wellbeing for its citizens.
Public funding has an essential role to play in achieving these goals and bridging massive financing gaps. However, the current EU fiscal rules limit government to close financing gaps, so that achieving green, digital, and social targets seems unlikely without changing the architecture of those rules.
In this policy brief, we describe three complementary reform proposals that have a high political feasibility while granting all Member States as much necessary fiscal flexibility as possible:
- An exemption of the rules for investment for a green and just transition
- An expenditure rule
- The establishment of a permanent centralised fiscal capacity
These reforms enable Member States to address the key challenges of the times while ensuring stability and the sustainability of public finances. Moreover, these reforms have the potential to unlock several benefits for the economic governance framework of the EU, such as a simplification of the current rules, enhanced transparency, effective enforcement and to provide incentives for reforms and investments for the long term.