2023 annual report of the European Fiscal Board

On 4 October 2023, the European Fiscal Board (EFB) published its seventh annual report. The report assesses the fiscal policy conducted in 2022 and updates the EFB’s proposals for a reform of the EU fiscal framework.

In 2022, the EU economy continued to recover from the Covid pandemic despite the energy crisis sparked by Russia’s war of aggression in Ukraine. Real GDP grew by 3.5% on average in both the euro area and the EU while surging energy prices pushed inflation to record highs. Fiscal positions improved significantly thanks to the pashing out of Covid support measures and revenue windfalls linked to much higher-than-expected inflation. However, EU Member States missed the opportunity to make progress towards safer fiscal positions as (i) government expenditure net of temporary measures continued to outpace sustainable rates; and (ii) new energy support measures were largely untargeted.

Professor Niels Thygesen, Chair of the Board, noted that “the fiscal surveillance regime did not do enough to guide EU countries towards a more appropriate fiscal policy. The Commission continued to follow an extensive interpretation of the severe economic downturn clause, de facto suspending the EU rules, although the conditions for applying the clause were no longer met”.

The EFB supports the main thrust of the Commission’s reform proposal with two reservations: (i) the reform does not envisage joint elements to supply strategic EU public goods; and (ii) the intent to merge fiscal and structural surveillance can weaken public finances in the medium and long term. The EFB also notes that the ongoing debate among Member States in the Council comes with the risk of adding too many quantitative benchmarks and safeguards for annual deficit and debt reduction. Finally, the EFB believes that a reformed EU framework would benefit from stronger elements of independent advice at both the national and the central level.