The Interaction of National and Supranational Fiscal Surveillance: How Much Reform is needed? Peter Wierts De Nederlandsche Bank University of Reading London, 31 March 2006 European Institute (LSE)

Introduction: analysis of aggregate fiscal policy plans and outcomes…

…hides huge differences in fiscal outcomes across countries

Hence analysis should take into account: All Member States are subject to the same supranational fiscal framework While there are huge differences in national fiscal rules and institutions across Member States: -National budgetary institutions -E.g. expenditure rules, independent forecasting institutions, national stability pacts -National political institutions -E.g. political fragmentation, ideology of government, degree of political stability, parliamentary system

How Much Reform is Needed? Depends on your objective! 1.National rules and institutions: compare national fiscal objectives with outcomes 2.Can slippages be attributed to institutional weakness? Focus here is on expenditure rules and independent forecasting institutions

National medium-term fiscal objectives: Expenditure based consolidation (all stability and convergence programmes, , %GDP)

Slippages in implementation: (i) planned expenditure reductions not implemented; (ii) growth lower-than-projected

Link between expenditure slippages and design national expenditure rules?

Role growth forecasts: negative surprises or deliberately optimistic projections?

Link between optimistic growth forecasts and checks and balances in national forecasting process?

How Much Reform is Needed? EU Fiscal Surveillance Analyse underlying causes of budgetary slippages Platform for analysis on role of national fiscal institutions in improving policy outcomes National Fiscal Surveillance Ambitious plans of expenditure based consolidation generally not implemented: Specify necessary reforms Focus on medium term expenditure management Expenditure rules: monitoring and enforcement Checks and balances in forecasting process