Discussions about the need for fiscal reform and ensuring debt sustainability within EU member states have been rife lately as institutions of the European Commission grapple with the realities of government bureaucracy. Technocrats within these institutions are often accused of having lost touch with reality, fixated on numerical indicators such as maintaining a 3% deficit and 60% debt level.
The focus, instead, needs to shift to establishing one clear objective, the sustainability of public debt, and ensuring all ‘sub-goals’ move towards achieving this main objective. However, sustainability should not be dictated by a one-size-fits-all formula. Each nation’s circumstances must be taken into account, such as borrowing interest rates, making each accountable without imposing an unrealistic goal.
Unfortunately, a demand for simplicity has led many to support easily understandable numerical guidelines, failing to recognize their shortfalls when times get tough. Recently, there has been a re-emergence of discussions about excluding defense spending from budget deficit calculations.
The concerns are that allowing spending that makes debt unsustainable followed by calls for debt measures only creates issues. Furthermore, defining what exactly constitutes defense spending could pose practical problems. The need for a holistic approach calls for policymakers with depth and fortitude willing to question and challenge existing trends.
The unique fiscal conditions of every EU member state should be evaluated individually to ensure a clear and institutionalized process leading to true debt sustainability.
