Solving Europe’s Credibility Problem

Moreover, Europe has instruments to ensure that commitments retain their long-term value. Its surveillance apparatus is mostly used to monitor budget deficits in real time, but it could also help to evaluate the future consequences of policy decisions. The so-called costing of policy measures (determining the exact amount of savings brought about by a reform) requires technical skills and access to extensive data. The European Commission is uniquely equipped to do this job; together with the independent national fiscal watchdogs, it could be asked to review draft laws in detail, assess their future budgetary effects, and thereby ensure that governments do not embellish their projections when promising that their reforms will yield future savings.

A cut taxes now, cut expenditures later strategy is therefore feasible. Though such a strategy would be challenging to implement and enforce, it could be credible and remain compatible with fiscal responsibility if it were buttressed by strong commitment mechanisms at the national and European levels.

Of course, not everybody agrees that such a strategy, though possible, is desirable. But that is an entirely different matter.

Jean Pisani-Ferry is a professor at the Hertie School of Governance in Berlin, and currently serves as the French government’s Commissioner-General for Policy Planning. He is a former director of Bruegel, the Brussels-based economic think tank.

Copyright: Project Syndicate, 2014.