(4)

A strong coordination of national fiscal policies, based on common rules, is essential to arrive at an appropriate aggregate fiscal stance and for the proper functioning of the monetary union. The common fiscal rules are geared towards pursuing debt sustainability at national level, while providing room for macroeconomic stabilisation. Consequently, the national and aggregate fiscal stances of the euro area have to balance the double objective of ensuring long-term sustainability of national public finances and short-term macroeconomic stabilisation at both country level and the level of the euro area. At the current juncture of high uncertainty about the strength of the recovery and the level of spare capacity in the economy, when monetary policy has delivered substantial accommodation, fiscal policy at the level of the euro area is necessary to complement monetary policy in supporting demand, in particular investment, and moving out of low inflation while taking due account of ongoing debt sustainability concerns. The effectiveness of fiscal policy, including of spillover effects across countries, is enhanced by the context of low interest rates. In its Communication to the European Parliament, the Council, the European Central Bank, the European Economic and Social Committee and the Committee of the Regions ‘Towards a positive fiscal stance for the euro area’ issued on 16 November 2016, the Commission considers that for 2017, a fiscal expansion of up to 0,5 % of GDP is desirable at the level of the euro area as a whole in the present circumstances. In July 2016, the Eurogroup concluded, on the basis of Commission analysis, that the broadly neutral aggregate fiscal stance in 2017 strikes an appropriate balance. In December 2016, the Eurogroup underlined the importance of striking an appropriate balance between the need to ensure sustainability and the need to support investment to strengthen the fragile recovery, thereby contributing to a more balanced policy mix. At the same time, government debt remains high and there is still a need to make public finances sustainable in the medium term in a number of Member States. For that reason, it is necessary to ensure appropriate differentiation of fiscal efforts across the Member States, taking into account fiscal space and the spillovers across euro area countries. Member States which are over-achieving their fiscal objectives could use their favourable budgetary situation to further strengthen their domestic demand and growth potential, depending on country specific circumstances, while respecting the medium-term objective, the national budgetary prerogatives and national requirements. For instance, guarantees to the European Fund for Strategic Investments established by Regulation (EU) 2015/1017 of the European Parliament and of the Council (2) are a particularly effective way for Member States with fiscal space to maximise the impact on the real economy and recovery in the euro area. Member States that need further fiscal adjustments under the preventive arm of the Stability and Growth Pact (SGP) should make sure to be compliant with SGP requirements for 2017. Under the corrective arm of the SGP, Member States need to ensure a timely and durable correction of their excessive deficits which provides fiscal buffers against unforeseen circumstances. Member States should pursue fiscal policies in full respect of the SGP, while making best use of the flexibility embedded within the existing rules. Structural reforms, in particular those that increase productivity, would support growth and improve sustainability of public finances. In addition, a decisive improvement of the composition and management of national budgets, on both the revenue and expenditure sides, by shifting resources towards tangible and intangible investment would increase the impact of budgets on demand in the short term and productivity in the longer term. Effective national fiscal frameworks are necessary to strengthen the credibility of Member States' policies and help strike the right balance between short-term macroeconomic stabilisation, debt sustainability and long-term growth.