Reducing unemployment, strengthening the euro area’s growth prospects and ensuring the future resilience
of the European economy require better tailored fiscal tools at euro area level. Today, the limits of the
EU’s fiscal framework mean that the euro area has had to rely excessively on the monetary
policy of the European Central Bank (ECB) to ensure macroeconomic stability. As these monetary
policy tools are increasingly stretched, calls for a more balanced policy mix that includes more supportive
fiscal policies have been voiced by the EU – including by Commission President Jean-Claude Juncker in his
2016 State of the Union ‘Letter of Intent’1
and by ECB President Mario Draghi – as well as by a very broad
set of stakeholders, from international organisations to academics. Against this backdrop, the Commission
presented on 16 November a Communication ‘Towards a Positive Fiscal Stance for the Euro Area’,
confirming its intention to promote a more supportive fiscal policy in the euro area. Given the challenges
that lie ahead and the current economic juncture, there is a strong case for increasing public investments in
areas that increase the resilience of the European economy. In short, there is both a need and a unique
window of opportunity for the EU to take action on the fiscal front at this precise point in time.
This increased fiscal responsibility must be implemented in combination with supportive structural reforms
and investments, making sure the elements of the ‘virtuous triangle’ are mutually reinforcing
EPSC Strategic Notes*. Towards a Positive Euro Area Fiscal Stance. Supporting public investments that increase economic growth
Economic Context Calls for
In certain circumstances, such as in prolonged periods
of sub-par growth and monetary policy at the ‘zero
lower bound’, there are good reasons to expand
discretionary fiscal policy in order to support aggregate
demand. The euro area currently meets these criteria,
despite recent improvements in the economic outlook.
Low Interest Rates Favour
Some Member States have the fiscal space to engage
in an expansionary fiscal policy but they do not use it
due to limitations in the Stability and Growth Pact. Yet,
there is a strong case for taking advantage of today’s
very low funding costs to invest in the economy. The
largest beneficiary of any fiscal expansion will be the
Member State that undertakes it.
Monetary Policy Needs Support
A positive fiscal stance is needed to support the
accommodating monetary policy of the ECB, which
currently bears the largest burden in terms of
stabilising the euro area. The ECB has repeatedly
warned of the increasing constraints it faces on the
use of monetary tools, calling for a euro area fiscal
counterpart to its monetary policy efforts.
Positive Fiscal Stance Reinforces.
In combination with reforms and public investments
supported by EU-level financial instruments, a positive
fiscal stance will support the modernisation of the
economy, as additional investments are channelled
into strategic areas, opening up new markets and
further developing existing ones.
*EPSC Strategic Notes are analytical papers on topics chosen by the President of the European Commission. They are produced by the European Political
Strategy Centre (EPSC), the European Commission’s in-house think tank.