Europe’s Budget Rules Need Smart Enforcement
The European Commission is right to sanction outlandish rule-breaking, but it shouldn’t ignore signs of a slowing economy.
Better not – but Italy’s a special case
Photographer: Alessia Pierdomenico/Bloomberg
As it does each year, the European Commission is digging into the budgets of euro-zone member states to see if they comply with the bloc’s fiscal rules. The recent slowing of the European economy complicates this work — or ought to. It suggests that Brussels should not be overly strict. The commission needs to sanction serious violations, but it can afford to be lenient with borderline cases.
The commission’s current forecasts say that output in the euro area will expand by around 2 percent this year and next. But the most recent signs are less encouraging. Growth is faltering. The upsurge in U.S. protectionism threatens Europe’s exporters. And heightened volatility in financial markets is undermining confidence. The European Central Bank has rightly promised to end its bond-buying program at the end of this year, which puts more of the burden of maintaining macroeconomic stability on fiscal policy. No question, the euro area should take the rules seriously and use the recovery to reduce public debt — but this doesn’t mean turning a blind eye to the risk of a renewed slowdown.