In a nutshell, a credible fiscal framework is more important than ever. The European Commission’s proposal for reform As a result, the European Commission is currently undertaking a review of the EU’s fiscal framework, with the aim of reducing its complexity, improving compliance, promoting a 3  See, for example, Badinger, H., and W. H. Reuter (2017). The Case for Fiscal Rules. Economic Modelling, 60, 334–343. 4  more countercyclical behaviour of fiscal policy and accommodating the new investment needs of the green and digital transitions. In this context, in its Communication of 9 November 2022, the Commission presented its orientations in order to promote and guide discussions among stakeholders about the reform. 4 Let me now spend a few minutes describing its main features so that I can then share with you my own views on the key aspects a functioning fiscal framework should have. While going through my “wish list”, I will reflect on the strengths and shortcomings of the Commission’s proposal, as a way to comment on the difficulties that any proposed reform will face. The main objective of the proposal is to ensure that public debt ratios are put on a downward path or stay at prudent levels, keeping the debt-to-GDP ratio of 60% as the reference value. And retaining the need for public deficits to stay below the 3% reference value over the medium term, which has proven effective in anchoring Member States' public accounts. 5.
It should also include the completion of the Banking Union and the Capital Markets Union. In this vein, some of the initiatives that have been adopted during the pandemic could be expanded, such as the SURE, which mitigated the risks of unemployment during the emergency period. This particular new tool allowed substantial interest savings for most Member States, protecting them from financial stress. 10 The timeframe for the NGEU could also be revised in order to avoid risking the interruption of some of the investments needed for digitalisation, combating climate change or the EU’s Open Strategic Autonomy. Conclusions To conclude, the EU’s fiscal governance framework is a key element of the euro area’s institutional architecture. And there is broad consensus that it needs to be reformed. Despite being well-intentioned in origin, the current institutional setup has many shortcomings and the attempts to correct them over the past decades have yielded a  9 A view shared by other institutions, like the IMF. See Gaspar, V., A. Kammer and C. Pazarbasoglu (2022). “European Fiscal Governance: A Proposal from the IMF”, IMF Blog, 5 September 2022. 10  See Burriel, P., I. Kataryniuk and J.J. Pérez (2022). Computing the EU'S SURE interest savings using an extended debt sustainability assessment tool. Banco de España Occasional Papers No 2210. 8  complex and pro-cyclical fiscal framework, which has not prevented the build-up of fiscal and macroeconomic imbalances or the lack of strong incentives for implementation.