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EU governments are running large deficits without complaint from the Commission because last March the Commission recommended the Council activate the 'general escape clause' for fiscal policy coordination. Eventually that clause will be deactivated. 1/n https://www.europarl.europa.eu/RegData/etudes/IDAN/2020/651378/IPOL_IDA(2020)651378_EN.pdf
The general escape clause does not 'suspend' the rules, but it does give the Commission more discretion in how the rules should be monitored or applied when there is a big shock that hits the EU or eurozone economy. That discretion should not undermine fiscal sustainability. 2/n
The trick is that while it is easy to recognize the onset of the kind of shock that would trigger the general escape clause, it is harder to figure out when that same clause should be deactivated. The European Fiscal Board made this point last summer. 3/n https://ec.europa.eu/info/sites/info/files/2020_06_25_efb_assessment_of_euro_area_fiscal_stance_en.pdf
It is hard to see how you might deactivate the clause now. But the European Commission has already made it known that these special circumstances cannot last forever. Hence, the plan is the 'reassess the situation' in spring 2021. 4/n https://ec.europa.eu/info/sites/info/files/economy-finance/dbps_overall_assessment.pdf
Going back to the usual rules will be challenging. Some countries will have debt to GDP ratios that are too high to bring down quickly; some will still be suffering from the impact of the pandemic. The time to start thinking about alternatives is now. 5/n
It would be interesting to hear ideas from @adriaanschout @pbergsen @SMerler @taddei76 @m2matthijs @adam_tooze among others. No doubt colleagues @Bruegel_org and @CEPS_thinktank are already well advanced in thinking through this challenge. 6/6
