European fiscal rules are complex, opaque and plagued with exceptions and exemptions which have accumulated over time. They rely excessively on measures of cyclical positions which are controversial and prone to manipulation2. Simpler and more credible and effective rules are needed to ensure that euro area countries safeguard fiscal sustainability and build the necessary buffers to create room for countercyclical stabilisation in economic downturns.
Recent proposals 3/4  BIS central bankers' speeches  to focus the fiscal framework on a debt anchor complemented by an expenditure rule deserve further consideration.3 EMU also needs a central fiscal stabilisation mechanism to enhance countercyclical stabilisation during severe recessions. Past experience shows that the aggregate fiscal stance in the euro area is often suboptimal.