The recent change in the SGP concerns a relaxation of the rules. The definition of a severe recession, being a valid reason for exemption from the EDP, has now been relaxed. Also, a longer time frame for taking effective action is allowed, now three years instead of the earlier two, from when the deficit occurred. The SGP has received its fair share of criticism, both before and after the changes made in 2005. Although it undoubtedly has it shortcomings, it is important to view it both in a longer perspective and from a more theoretical point of view. Too many euro area members have had lax fiscal policies in the past, resulting in deficits around 3 per cent of GDP or more. Combined with current low fiscal ambitions, this clearly constitutes a problem. However, with several EU countries in recent history having experienced deficits several times the size of that stipulated by the SGP, the main goal of a framework does not necessarily have to be to strive for a perfect world, but rather to avoid very large deficits. Somewhat unfairly, the SGP is sometimes evaluated as if it was the framework of an optimal policy. Trying to optimise everyone’s well-being, one would have to take everything into account. However, in my view, the SGP has more in common with a simple instrument rule. Although not optimal, simple rules have the advantage that they increase the chance of avoiding large policy mistakes –a measure by which the SGP so far has succeeded.
Lastly, it must be borne in mind that the short and medium-term challenges posed by the recent period of extraordinary crises do not make tackling the banking sector’s structural challenges – such as those linked to the management of climate-related risks, digitalisation and growing competition from technology firms – any less urgent. Thank you. 10