COMMISSION STAFF WORKING DOCUMENT Review of the suitability of the Council Directive 2011/85/EU on requirements for budgetary frameworks of the Member States Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS Economic governance review Report on the application of Regulations (EU) No 1173/2011, 1174/2011, 1175/2011, 1176/2011, 1177/2011, 472/2013 and 473/2013 and on the suitability of Council Directive 2011/85/EU
Date: 2020-02-05
Institutions: Directorate-General for Economic and Financial Affairs, European Commission
Subjects: EU Member State, Economic and Monetary Union, budget deficit, budget policy, budgetary control, economic convergence, economic disparity, economic reform, macroeconomics, participating country (euro area)

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 5.2.2020  SWD(2020) 211 final  COMMISSION STAFF WORKING DOCUMENT Review of the suitability of the Council Directive 2011/85/EU on requirements for budgetary frameworks of the Member States Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS Economic governance review        Report on the application of Regulations (EU) No 1173/2011, 1174/2011, 1175/2011, 1176/2011, 1177/2011, 472/2013 and 473/2013 and on the suitability of Council Directive 2011/85/EU {COM(2020) 55 final} - {SWD(2020) 210 final}  
 
 
COMMISSION STAFF WORKING DOCUMENT 

Review of the suitability of the Council Directive 2011/85/EU on requirements for 
budgetary frameworks of the Member States 

Accompanying the document 

COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN 
PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK, THE 
EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE 
COMMITTEE OF THE REGIONS 

Economic governance review 

Report on the application of Regulations (EU) No 1173/2011, 1174/2011, 1175/2011, 
1176/2011, 1177/2011, 472/2013 and 473/2013 and Council Directive 2011/85/EU1 

1 Six pack: Regulation (EU) No 1173/2011 of the European Parliament and of the Council of 16 November 
2011 on the effective enforcement of budgetary surveillance in the euro area, OJ L 306, 23.11.2011, p. 1; 
Regulation (EU) No 1174/2011 of the European Parliament and of the Council of 16 November 2011 on 
enforcement  measures  to  correct  excessive  macroeconomic  imbalances  in  the  euro  area,  OJ  L  306, 
23.11.2011,  p.  8;  Regulation  (EU)  No  1175/2011  of  the  European  Parliament  and  of  the  Council  of  16 
November 2011 amending Council Regulation (EC) No 1466/97 on the strengthening of the surveillance of 
budgetary positions and the surveillance and coordination of economic policies, OJ L 306, 23.11.2011, p. 
12; Regulation (EU) 1176/2011 of the European Parliament and of the Council of 16 November 2011 on 
the  prevention  and  correction  of  macroeconomic  imbalances,  OJ  L  306,  23.11.2011,  p.  25;  Regulation 
(EU)  No  1177/2011  of  8  November  2011  amending  Regulation  (EC)  No  1467/97  on  speeding  up  and 
clarifying  the  implementation  of  the  excessive  deficit  procedure,  OJ  L  306,  23.11.2011,  p.  33;  Directive 
2011/85/EU  of  the  Council  of  8  November  2011  on  the  requirements  for  budgetary  frameworks  of  the 
Member States, OJ  L 306, 23.11.2011, p. 41;  Two-pack:  Regulation (EU) No 472/2013 of the  European 
Parliament  and  of  the  Council  of  21  May  2013  on  the  strengthening  of  economic  and  budgetary 
surveillance  of  Member  States  in  the  euro  area  experiencing  or  threatened  with  serious  difficulties  with 
respect  to  their  financial  stability,  OJ  L  140,  27.5.2013,  p.  1;  Regulation  (EU)  No  473/2013  of  the 
European  Parliament  and  of  the  Council  of  21  May  2013  on  common  provisions  for  monitoring  and 
assessing draft budgetary plans and ensuring the correction of excessive deficit of the Member States in the 
euro area, OJ L 140, 27.5.2013, p. 11. 

1 

 
 
 
 
                                                           
 
Contents 

1. 

INTRODUCTION ................................................................................................................................ 3 

2.  DIRECTIVE 2011/85 – CONTEXT, RATIONALE AND MAIN ELEMENTS ................................. 5 

3.  MAIN DEVELOPMENTS IN THE AREAS COVERED BY DIRECTIVE 2011/85 ......................... 9 

3.1. 

Statistics and transparency .............................................................................................. 9 

3.1.1. 

General considerations ............................................................................................ 9 

3.1.2.  Main developments ............................................................................................... 12 

3.1.3. 

Conclusions ........................................................................................................... 25 

3.2. 

Forecasts ........................................................................................................................ 27 

3.2.1. 

General considerations .......................................................................................... 27 

3.2.2.  Main developments ............................................................................................... 29 

3.2.3. 

Conclusions ........................................................................................................... 36 

3.3.  Numerical fiscal rules .................................................................................................... 37 

3.3.1. 

General considerations .......................................................................................... 37 

3.3.2.  Main developments ............................................................................................... 38 

3.3.3. 

Effectiveness of NFRs in meeting the objectives of Directive 2011/85 ................ 45 

3.3.4. 

Conclusions ........................................................................................................... 51 

3.4.  Medium-term budgetary frameworks ............................................................................ 52 

3.4.1. 

General considerations .......................................................................................... 52 

3.4.2.  Main developments ............................................................................................... 55 

3.4.3. 

Effectiveness of MTBF ......................................................................................... 60 

3.4.4. 

Conclusions ........................................................................................................... 65 

3.5.  Coordination mechanisms across sub-sectors of general government .......................... 66 

3.5.1. 

General considerations .......................................................................................... 66 

3.5.2.  Main developments ............................................................................................... 69 

3.5.3. 

Conclusions ........................................................................................................... 76 

4.  OVERALL ASSESSMENT AND CONCLUSIONS ......................................................................... 76 

5.  ANNEX: STAKEHOLDERS SURVEY ............................................................................................. 81 

2 

 
 
 
 
 
1. 

INTRODUCTION 

Directive  2011/85/EU  on  requirements  for  national  budgetary  frameworks  of  the 
Member States2 was adopted in November 2011. It was part of a package of legislative 
initiatives  (the  ‘six-pack’)  presented  by  the  Commission  in  response  to  the  worldwide 
economic  and  financial  crisis.  It  was  the  first  piece  of  EU  legislation  setting  EU-level 
minimum  requirements  for  national  budgetary  frameworks.  Directive  2011/85  contains 
requirements  concerning  the  main  elements  of  national  budgetary  frameworks,  namely 
with respect to: 

  systems of budgetary accounting and statistical reporting;  

 

rules  and  procedures  governing  the  preparation  of  forecasts  for  budgetary 
planning;  

  country-specific numerical fiscal rules;  

  medium-term budgetary frameworks;  

 

transparency  of  public  finances  and  mechanisms  that  regulate  fiscal 
relationships  between  public  authorities  across  sub-sectors  of  general 
government.  

This staff working document accompanies the Commission Communication on the 
economic governance review.3 Article 16 of Directive 2011/85 requires the Commission 
to publish a ‘review of [its] suitability’. The Commission has carried out that review in 
the  context  of  a  general  review  of  EU  economic  governance.  This  staff  working 
document  supports  the  review  of  Directive  2011/85,  given  the  specific  nature  of  the 
review  clause  in  Article  16  (see  Box  1).  It  contains  background  analysis  and  technical 
information  supporting  and  supplementing  the  Commission’s  views  presented  in  its 
Communication.  

Box 1. Council Directive on requirements for budgetary frameworks of the Member States 

Article 16 

1.  By  14  December  2018  the  Commission  shall  publish  a  review  of  the  suitability  of  this 
Directive. 

2. The review shall assess, inter alia, the suitability of: 

(a) the statistical requirements for all sub-sectors of government; 

(b) the design and effectiveness of numerical fiscal rules in the Member States; 

(c) the general level of transparency of public finances in the Member States. 

[…] 

2  Council  Directive  2011/85/EU  of  8  November  2011  on  requirements  for  budgetary  frameworks  of  the 

Member States, OJ L 306, 23.11.2011, p. 41. 

3 COM(2020) 55 

3 

 
 
 
                                                           
The review clause in Article 16 determines the nature and content of the review: 

 

 

it envisages a one-off review of suitability. As Directive 2011/85 was the first 
EU’s  legislative  initiative  setting  out  requirements  for  national  budgetary 
frameworks, the purpose of the review is to inform the legislator whether that EU 
intervention  has  delivered  on  its  objectives  and  whether  it  has  been  ‘suitable’. 
Therefore, the staff working document reviews experience with Directive 2011/85 
so  far,  notably  in  terms  of  its  transposition  into  the  Member  States’  legal  order 
and  implementation  of  its  requirements  in  practice.  The  primary  focus  of  the 
analysis is on the period since its entry into force on 13 December 2011;  

the  requirement  to  assess  the  ‘suitability’  of  Directive  2011/85  is  relatively 
open.  It  is  not,  however,  a  weakness  of  the  review  clause.  On  the  contrary, 
because  Directive  2011/85  covers  a  wide  and  varied  range  of  issues,  the  broad 
wording of the clause means that the assessment approach can be tailored to each 
of the areas in the most appropriate way;  

  Article 16 emphasises several areas of Directive 2011/85 (see Box 1), but does 
not restrict the review to them (note the use of ‘inter alia’). The Commission’s 
review therefore covers the whole Directive,  given the interlinkages between its 
various parts.  

The  analysis  and  conclusions  set  out  below  take  account  of  the  fact  that  Directive 
2011/85  was  the  first  but  not  the  only  legislative  initiative  in  the  area  of  national 
budgetary  frameworks.  Other  initiatives  have  also  had  profound  impacts  on  Member 
States’  actions  in  this  area.  Therefore,  identifying  its  impact,  as  opposed  to  that  of  the 
other EU and EU-level instruments, is in general challenging and often involves a large 
degree  of  judgment.  For  that  reason,  the  Commission  is  undertaking  a  comprehensive 
and  holistic  assessment  of  the  EU  fiscal  framework  and  the  legislation  concerning 
national fiscal frameworks in this and related documents.4 The subsequent sections will 
return  to  that  issue  in  more  specific  terms  when  discussing  the  individual  parts  of 
Directive 2011/85.  

This  staff  working  document  has  been  prepared  using  information  collected 
through  multiple  processes  and  channels.  It  includes  information  gathered  for  the 
purposes  of  checking  compliance  with  Directive  2011/85.  In  addition,  the  Commission 
services  regularly  collect  information  on  the  design  and  functioning  of  national  fiscal 
frameworks  and  make  it  available  in  a  structured  manner  in  the  Fiscal  Governance 
Database  maintained  by  the  Commission’s  Directorate  General  for  Economic  and 
Financial  Affairs.5  Unless  otherwise  noted,  the  cut-off  date  for  information  taken  into 
account for the analysis is December 2019. 

The analysis presented here has been greatly enhanced by a wide survey of Member 
State practitioners involved in the implementation of Directive 2011/85. Specifically, 
the  survey  involved  the  Member  States’  ministries  of  finance  (as  the  main  ‘operators’ 

4 COM(2020) 55, SWD(2020) 210 

5 

https://ec.europa.eu/info/business-economy-euro/indicators-statistics/economic-databases/fiscal-

governance-eu-member-states_en  

4 

 
 
 
                                                           
affected by Directive 2011/85), statistical offices and independent fiscal institutions (IFI). 
The  document  reflects  views  of  the  surveyed  experts  throughout  the  text,  with  more 
details presented in the Annex.  

The  structure  of  this  staff  working  document  broadly  follows  the  structure  of 
Directive 2011/85. Section 2 provides background information about the Directive itself 
–  it  recalls  the  history  of  its  adoption,  its  objectives  and  the  specific  tools  provided  to 
achieve  them.  Section  3  contains  the  main  analysis  organised  in  sub-sections 
corresponding  to  the  building  blocks  of  Directive  2011/85.  All  the  sub-sections  have  a 
similar structure, first setting out the Directive’s provisions and their rationale, followed 
by  a  description  and  analysis  of  key  developments  in  the  area  concerned  in  terms  of 
national transposition and implementation. Two of the sub-sections, namely those on the 
numerical  fiscal  rules  and  the  medium-term  budgetary  frameworks,  include  additional 
analysis  looking  into  the  effectiveness  of  those  fiscal  devices  in  the  light  of  the 
Directive’s provisions. Finally, Section 4 summarises and concludes the overall analysis.  

2.  DIRECTIVE 2011/85 – CONTEXT, RATIONALE AND MAIN ELEMENTS 

Directive 2011/85 was part of the EU’s attempt to improve its economic governance 
as  a  response  to  the  crisis.  While  the  global  economic  and  financial  crisis  originated 
elsewhere, the EU was profoundly affected. The economic and financial shock exposed 
weaknesses in Member States’ economies and put into question the effectiveness of the 
EU’s  economic  surveillance.  While  the  sources  of  those  weaknesses  were  very  diverse 
and not necessarily fiscal in nature, the crisis led to a sudden and dramatic deterioration 
of fiscal  accounts.  This was primarily due to  the sharp economic downturn, but  also  to 
the  insufficient  reduction  of  debt  before  the  crisis.  The  rapidly  deteriorating  fiscal 
positions, in some Member States in particular, undermined financial market confidence, 
leading  to  a  sharp  increase  in  government  bond  yields.  Financing  costs  reached 
unsustainable  levels  in  several  Member  States  and  required  EU  and  international 
financial assistance.  

As a response to those developments and to address the shortcomings in pre-crisis 
economic surveillance, the Commission sought to strengthen and broaden economic 
policy  coordination.  In  September  2010,  the  Commission  published  a  package  of 
legislative proposals (the ‘six-pack’), which strengthened the Stability and Growth Pact 
(SGP)  and  extend  EU  surveillance  to  macroeconomic  imbalances.  The  package  also 
contained a proposal for a Council Directive on requirements for budgetary frameworks 
of the Member States.  

The imperative of strengthening Member States’ fiscal governance rested on a vast 
body  of  economic  literature  illustrating  the  benefits  of  fiscal  frameworks  for 
conducting sound fiscal policies. Strong rule-based domestic frameworks support fiscal 
responsibility  with  a  view  to  attaining  sound  budgetary  positions,  in  particular  by 
containing  the  deficit  bias,  and  to  reducing  the  pro-cyclicality  of  fiscal  policy  choices 
(European  Commission,  2010).  Institutional  settings  at  national  level  can  play  an 
important role in reining in spending and deficit biases; they include in particular: 

(i) 

(ii) 

the procedural rules of the budgetary process; 

the  numerical  fiscal  rules  guiding  or  constraining  policy-makers’ 
discretion; and  

5 

 
 
(iii) 

independent fiscal bodies or institutions in charge of providing inputs (e.g. 
forecast, analysis) and formulating recommendations in the area of fiscal 
policy (European Commission, 2006).  

While  some  research  shows  that  fiscal  rules  have  sustained  fiscal  discipline  in  a 
significant  number  of  countries  (Guichard  et  al.,  2007),  other  papers  emphasise  the 
importance  of  well-designed  budgetary  procedures  in  ensuring  the  centralisation  of  the 
budget  formulation  (von  Hagen  et  al.,  2002).  Other  contributions  analyse  the  effect  of 
specific  characteristics  of  fiscal  frameworks  on  budgetary  performance.  For  example, 
countries implementing stronger rules over a larger share of general government finances 
were found to register better budgetary outcomes (Debrun et al., 2008), whilst effective 
medium-term  budgetary  planning  appears  instrumental  in  sticking  to  budgetary  plans 
(European Commission,  2007). The quality of domestic budgetary procedures was also 
shown to contribute to better budgetary performance (Fabrizio and Mody, 2006). 

While  the  crisis  was  the  immediate  trigger  for  the  proposal  for  Directive  2011/85, 
the  focus  on  the  national  fiscal  frameworks  in  Member  States,  on  their  role  and 
importance had been steadily growing long before its adoption. First, given that the 
Treaty defines Member States’ budgetary obligations in terms of the general government 
sector, Protocol No 12 on the excessive deficit procedure (EDP) annexed to the Treaties 
requires Member States to ‘ensure that national procedures in the budgetary area enable 
them to meet their obligations in this area deriving from these Treaties’. Further, in the 
context  of  the  first  reform  of  the  SGP  in  March  2005,  the  Council  highlighted  the 
importance  of  national  budgetary  frameworks  in  its  report  to  the  European  Council  on 
‘Improving the implementation of the Stability and Growth Pact’. The Council stressed 
the  need  for  complementarity  between  the  national  frameworks  and  EU  fiscal  rules.  In 
the Council’s view, national rules should complement the Member States’ commitments 
under  the  SGP  and  national  governance  arrangements  should  complement  the  EU 
framework.  The  Council  considered  that  national  institutions  should  play  a  more 
prominent role in budgetary surveillance to strengthen ownership, enhance enforcement 
through national public opinion and complement the economic and policy analysis at EU 
level.  

Discussions  on  the  role  and  desirable  features  of  national  fiscal  frameworks 
continued along the ECOFIN filière within the Council. In May 2010, shortly before 
the publication of the draft Directive, the Council adopted Conclusions on domestic fiscal 
frameworks.  The  Council  stressed  the  importance  of  resilient  and  effective  fiscal 
frameworks  for  the  implementation  of  the  SGP  and  for  the  sustainability  of  public 
finances.  While  recognising  the  need  for  fiscal  governance  to  take  account  of  country-
specific  circumstances,  it  identified  some  desirable  common  features  of  resilient  and 
effective  fiscal  frameworks  and  encouraged  the  Member  States  to  enhance  their  fiscal 
governance arrangements. Among those features, the Council underlined the importance 
of  comprehensive  nature  of  fiscal  frameworks  and  of  strong  national  ownership.  The 
Council  also  invited  the  Member  States  to  strengthen  their  coordination  arrangements 
across  the  levels  of  administration  and  to  improve  budgetary  procedures.  Fiscal  rules, 
enforcement  mechanisms  and  independent  fiscal  institutions  were  the  elements  that 
significantly  contributed  to  the  effectiveness  of  fiscal  frameworks,  as  illustrated  by 
successful country experiences.  

Therefore,  Directive  2011/85  should  be  seen  as  a  further  development  of  previous 
policy discussion on the design and role of national fiscal frameworks in the EU. The 
severity  of  the  crisis  showed  that  it  was  no  longer  sufficient  to  rely  on  voluntary 

6 

 
 
exchange  of  best  practices  and  a  more  binding  approach  to  national  fiscal  frameworks 
was  necessary.  Directive  2011/85  therefore  set  minimum  requirements  for  Member 
States’ national fiscal frameworks to ensure that they support compliance with budgetary 
obligations under EU law. Directive 2011/85 (recital 1) aimed in particular to specify the 
obligations of national authorities to comply with the provisions of Protocol No 12. That 
objective  justifies  the  legal  base  of  the  Directive,  which  is  the  third  subparagraph  of 
Article  126(14)  of  the  Treaty  on  the  Functioning  of  the  European  Union  (TFEU).  It 
allows  the  Council  ‘on  a  proposal  from  the  Commission  and  after  consulting  the 
European  Parliament,  lay  down  detailed  rules  and  definitions  for  the  application  of  the 
provisions of the said Protocol’. 

The  objective  of  achieving  ‘uniform  compliance  with  budgetary  discipline  as 
required by the TFEU’ (recital 28) was important to avoid situations in which a lack 
of  fiscal  prudence  in  a  very  small  subset  of  Member  States  creates  significant 
negative  spillovers.  The  experience  of  the  crisis  also  highlighted  that  EU  budgetary 
requirements were not sufficiently internalised in fiscal policy-making at national level or 
at least not to the same extent in all Member States. Therefore, coordinated strengthening 
of fiscal frameworks, in line with the Directive’s minimum requirements were also meant 
to  contribute  to  enhancing  national  ownership  of  EU  budgetary  obligations  in  every 
Member State.  

Enhancing  policy  transparency  was  an  important  element  of  the  economic 
governance  reform  of  2010  in  general  and  of  Directive  2011/85  in  particular. 
Specifically, the European Semester of economic policy coordination shifted the focus of 
multilateral surveillance at EU level from ex-post information on policy decisions to ex-
ante  discussion  of  their  policy  plans.  The  discussion  on  policy  intentions  among  the 
Member  States  was  intended  to  provide  peer  support  to  avoid  policy  mistakes.  In  the 
same  vein,  Directive  2011/85  created  requirements  for  enhanced  fiscal  transparency  at 
national level in terms of statistical data, forecasting methodologies, medium-term policy 
objectives and the transparency of the whole general government sector.  

Directive 2011/85 has seven chapters. Chapter I lays down the purpose of the Directive 
and defines key terms. In particular, it defines the (national) budgetary framework as ‘the 
set  of  arrangements,  procedures,  rules  and  institutions  that  underlie  the  conduct  of 
budgetary policies of the general government’, comprising the following main elements:  

a)  systems of budgetary accounting and statistical reporting; 

b)  rules  and  procedures  governing  the  preparation  of  forecasts  for  budgetary 

planning; 

c)  country-specific  numerical  fiscal  rules,  which  contribute  to  the  consistency  of 
Member  States’  conduct  of  fiscal  policy  with  their  respective  obligations  under 
the TFEU, expressed in terms of a summary indicator of budgetary performance, 
such  as  the  government  budget  deficit,  borrowing,  debt,  or  a  major  component 
thereof; 

d)  budgetary procedures comprising procedural rules to underpin the budget process 

at all stages; 

e)  medium-term  budgetary  frameworks  as  a  specific  set  of  national  budgetary 
procedures  that  extend  the  horizon  for  fiscal  policy-making  beyond  the  annual 
budgetary calendar, including the setting of policy priorities and of medium- term 
budgetary objectives; 

7 

 
 
f)  arrangements  for 

independent  monitoring  and  analysis, 

to  enhance 

the 

transparency of elements of the budget process; 

g)  mechanisms and rules that regulate fiscal relationships between public authorities 

across sub-sectors of general government. 

For  those  elements,  Directive  2011/85  specifies  a  number  of  essential  standards, 
grouped  in  subsequent  chapters.  Chapter  II  contains  provisions  on  public  accounting 
and  statistics,  in  particular  the  availability  of  fiscal  data.  Chapter  III  lays  down 
requirements  for  forecasts  underlying  fiscal  planning.  The  provisions  of  Chapter  IV 
require  Member  States  to  have  in  place  numerical  fiscal  rules  and  set  out  their 
specifications. Chapter V covers medium-term budgetary frameworks, their elements and 
characteristics. Chapter VI concerns the transparency of general government finances and 
the  comprehensive  scope  of  budgetary  frameworks,  and  Chapter  VII  contains  final 
provisions,  including  the  review  clause.  Directive  2011/85  entered  into  force  in 
December  2011,  with  the  Member  States  obliged  to  bring  into  force  the  provisions 
necessary to comply with it by 31 December 2013.6 

After the adoption of Directive 2011/85, discussions on strengthening national fiscal 
frameworks  continued,  leading  to  further  EU  and  intergovernmental  initiatives. 
First,  the  Treaty  on  Stability,  Coordination  and  Governance  in  the  EMU  (TSCG),  an 
international  treaty  signed  in  March  2012,  requires  its  signatories  to  introduce  in  the 
national  legal  order  a  structural  budget-balance  rule  equipped  with  a  correction 
mechanism  and  to  set  up  a  national  independent  institution  to  monitor  its  operation. 
Those  provisions,  which  were  part  of  the  so-called  ‘Fiscal  Compact’  (Title  III  of  the 
TSCG),  apply  to  euro-area  Member  States  and  other  Member  States  that  declare  a 
willingness  to  be  bound  by  them  (to  date  Bulgaria,  Denmark  and  Romania)7.  Second, 
Regulation No 473/2013 (part of the ‘two-pack’) introduced more specific requirements 
for the euro-area Member States on the monitoring of national fiscal rules by independent 
fiscal  institutions,  the  use  of  independently  produced  or  endorsed  macroeconomic 
forecasts in budgeting, and on a common domestic budgetary timeline. 

An interim report took preliminary stock of the transposition of Directive 2011/85 
at  the  end  of  2012,  i.e.  well  before  the  transposition  deadline.  In  line  with  Article 
15(3) of Directive  2011/85,  the Commission submitted to  the European Parliament  and 
the Council the ‘Interim Progress Report’ on the implementation of Directive 2011/85 to 
inform the Parliament, the Council and the public on the progress with its transposition8. 
The report, primarily based on information reported by the Member States, noted at the 
time substantial, but uneven progress. Since the expiry of the transposition deadline at the 
end of 2013, the Commission has assessed compliance in accordance with the applicable 
EU procedures.  

To  conclude,  the  aim  of  Directive  2011/85  was  to  pioneer  the  strengthening  of 
Member  States’  budgetary  frameworks  in  the  wake  of  the  crisis,  which  then 

6  In  the  framework  of  the  Euro  Plus  Pact,  the  heads  of  state  and  government  of  the  euro-area  Member 

States committed in July 2011 to transpose the Directive ahead of time, i.e. by end-2012. 

7 See also Communication from the Commission. The Fiscal Compact: Taking Stock. C(2017) 1200 final. 
8  Interim  Progress  Report  on  the  implementation  of  Council  Directive  2011/85/EU  on  requirements  for 
final. 

budgetary 
761 
the  Member 
http://ec.europa.eu/economy_finance/publications/occasional_paper/2013/pdf/ocp128_en.pdf 

COM(2012) 

frameworks 

States. 

of 

8 

 
 
                                                           
received additional impetus from other EU and intergovernmental drivers. Directive 
2011/85 remains the first and the most wide-ranging EU policy intervention with respect 
to  specific  requirements  for  national  budgetary  frameworks.  It  is  also  the  only  legal 
instrument  in  that  field  addressed  to  all  Member  States,  as  Regulation  No  473/2013 
applies to euro-area Member States only. Nevertheless, its action and effectiveness have 
to be seen as part of a broader set of complementary and mutually reinforcing EU-level 
initiatives on fiscal governance. 

3.  MAIN DEVELOPMENTS IN THE AREAS COVERED BY DIRECTIVE 2011/85 

This  section  is  organised  in  sub-sections  corresponding  to  the  building  blocks  of  the 
Directive. Each sub-section first sets out the provisions of Directive 2011/85 and explains 
their rationale. The section follows with a description and analysis of key developments 
in terms of national transposition and implementation. The sub-sections on the numerical 
fiscal rules and medium-term budgetary frameworks include additional analysis looking 
into  the  effectiveness  of  these  fiscal  arrangements  in  the  light  of  the  Directive’s 
provisions. 

3.1.  Statistics and transparency 

3.1.1.  General considerations 

The sovereign debt crisis highlighted a number of lessons as regards statistics and 
transparency.  In  the  run-up  to  the  crisis,  government  deficit  and  debt  ratios  increased 
rapidly in  a number of Member States,  partly due to  the materialisation of implicit  and 
contingent  liabilities  stemming  from  the  financial  sector,  triggered  by  the  economic 
downturn.  In some cases, these increases only became apparent  with  the  publication of 
annual  data.  These  developments  coincided  with  the  revelation  of  the  true  scale  of 
Greece’s government deficit. A number of conclusions were drawn from these events; in 
particular: 

 

 

it  may  not  be  sufficient  to  focus  attention  only  on  fiscal-surveillance-relevant 
deficit  and  debt  ratios,  as  reported  to  Eurostat  in  the  context  of  the  Excessive 
Deficit  Procedure  (EDP)  statistics  (where  data  become  available  with  a  lag),  to 
understand underlying fiscal trends or take account of hidden liabilities; 

to  ensure fiscal  discipline,  Member States’ budgetary frameworks  need to cover 
domestic public finances comprehensively, which requires inter alia planning and 
reporting  systems  that  ensure  comprehensive  and  consistent  coverage  of  all 
sub-sectors of general government; and 

  concentrating control mechanisms solely on outturn data, as reported to Eurostat, 
may  not  suffice,  so  appropriate  safeguards  are  needed  to  ensure  the  quality  and 
reliability of input data.  

Directive 2011/85 aimed to fill those gaps by addressing areas not directly covered 
by  EU  requirements  at  the  time.  Specifically,  it  laid  down  requirements  on  public 
accounting,  high-frequency  fiscal  data  and  the  transparency  of  general  government 
finances  (in  particular  as  regards  extra-budgetary  units  and  funds,  contingent  liabilities 
and tax expenditures). 

Directive  2011/85  targets  having  in  place  public  accounting  systems  that  cover 
comprehensively  and  consistently  all  sub-sectors  of  general  government  and  are 

9 

 
 
subject to internal control and independent audits; the benefits of such systems go 
beyond statistics. The provisions of Directive 2011/85 in that area are two-fold: 

 

they  clearly  link  public  accounting  requirements  to  ensuring  the  quality  of 
ESA/EDP9  data,  which  are  crucial  for  the  proper  functioning  of  the  EU’s  fiscal 
surveillance framework,  by stressing the need  for  comprehensive  and  consistent 
reporting systems covering all sub-sectors of general government; and 

  Directive  2011/85  recognises  the  specific  value  of  public  accounting  systems 
beyond producing statistical data, inter alia by referencing the main international 
standard  in  this  area  and  by  stating  that  public  accounting  systems  include 
elements such as bookkeeping, internal control, financial reporting, and auditing, 
which are distinct from statistical data.  

As  timely  budgetary  monitoring  necessitates  the  availability  of  comprehensive 
high-frequency data shortly after the end of the reporting period, Directive 2011/85 
requires that such data be published for all sub-sectors of general government. The 
main  objective  here  was  to  enhance  timely  budgetary  monitoring  and  to  avoid  the  late 
detection  of  significant  budgetary  errors  (see  recital  7).  To  this  end,  Directive  2011/85 
introduced an obligation to publish, with a short lag, cash-based (or equivalent) data on 
which  the  subsequent  ESA/EDP  reporting  is  based,  along  with  methodological 
explanations of how the data are used to produce statistics according to ESA standard in 
the form of a detailed reconciliation table. The particular focus of Directive 2011/85 was 
to ensure that data are published for all sub-sectors of general government, as defined in 
the ESA, and not only for the units covered by regular budgets and therefore subject to 
monitoring by the budgetary authorities.  

The  reporting  requirements  in  Directive  2011/85  aim  to  strike  the  right  balance 
between  the  timeliness  and  the  comprehensiveness  of  the  data.  EU  budgetary 
surveillance is based on fiscal data compiled in line with the requirements in ESA 2010, 
which is an EU Regulation determining very precisely the content and format of the data. 
By contrast,  national  budgetary reporting is  based on national  traditions  and principles, 
and may therefore differ significantly from ESA-based data, in particular as regards: 

 

 

the  perimeter  of  general  government  sector,  where  national  accounts  are  based 
on economic substance rather than legal form, therefore usually capturing some 
of  the  extra-budgetary  units  and  corporations  not  covered  by  national  budgets; 
and  

the  time  of  recording  and  accounting  basis  –  while  ESA  2010  recording  is 
accruals-based  (i.e. it  captures  the  moment  of  underlying  activity),  national 
budgetary  reporting  is  predominantly  linked  to  the  timing  of  cash  payments  or 
appropriations.  

However,  the  main  advantage  of  the  national  budgetary  reporting  lies  in  its  timeliness. 
Directive 2011/85 combines these two aspects, requiring monthly publication (quarterly 

9   Protocol  (No  12)  on  the  excessive  deficit  procedure  (EDP)  annexed  to  the  Treaty  on  the  European 
Union  (TEU)  and  the  Treaty  on  the  Functioning  of  the  European  Union  (TFEU)  provides  that  EDP 
deficit  means  net  borrowing  as  defined  in  the  European  system  of  national  accounts  (ESA).  At  the 
same time, EDP debt means total gross debt at nominal value outstanding at the end of the  year and 
consolidated between and within the sectors of general government. For the purposes of this section, 
surveillance-relevant ratios of deficit and debt are referred to as ‘ESA/EDP data’. 

10 

 
 
                                                           
for local government) that is aligned with ESA requirements only in terms of the general 
government  perimeter,  while  providing  an  improved  timeliness.  In  addition  to 
high-frequency data based on national approaches, Article 4(7) of Directive 2011/85 also 
mandated Eurostat to publish quarterly deficit and debt data every three months. 

A  dedicated  statistical  task  force  further  specified  the  requirements  in  Directive 
2011/85 for national cash-based (or equivalent) data publication. The objective was 
to  assist  Member  States  with  the  practicalities  of  complying  with  Directive  2011/85  as 
regards  reporting  fiscal  data.  The  task  force  was  led  by  the  Commission  (Eurostat  in 
cooperation  with  the  Directorate-General  for  Economic  and  Financial  Affairs)  and  was 
composed  of  experts  in  the  area  of  budgetary  statistics.  It  produced  a  report  that  was 
endorsed by the Economic and Financial Committee in February 2013. Without altering 
the minimum requirements of Directive 2011/85, the report advocated the publication of 
more  detailed  breakdowns  on  the  basis  of  an  indicative  split  by  economic  categories 
(e.g. types of tax and major expenditure groups). With respect to the reconciliation table 
required by Article 3(2), the task force clarified that it should enable non-statisticians to 
understand better the conceptual differences and the transition between the monthly data 
used for national policy purposes and ESA data used for national accounts. 

Directive 2011/85 requires the publication of information on extra-budgetary bodies 
and  funds,  which  is  needed  to  ensure  better  fiscal  planning  and  strengthen 
democratic  control  over  public  finances.  As  explained  above  with  respect  to 
high-frequency  data,  in  most  cases  the  general  government  perimeter  for  ESA/EDP 
purposes is broader than the perimeter of institutions covered by national budgets. This is 
because  national  accounts  classify  units  according  to  their  economic  substance  rather 
than  formal  criteria;  over  the  years,  the  EU  statistical  system  has  developed  a 
comprehensive  set  of  criteria  that  help  to  establish  the  nature  of  units  and  of  their 
operations.10  In  order  to  reduce  the  chances  of  ex post  ‘negative  surprises’,  Directive 
2011/85  also  addressed  the  issue  of  units  classified  under  general  government  for  the 
purposes of national accounts, but not covered by regular budgets at sub-sector level. The 
operations  and  liabilities  of  such  units  affect  ESA/EDP  deficit  and  debt  outcomes,  but 
they will not necessarily be included at the planning stage, thus creating a risk of deficit 
and debt overruns vis-à-vis targets in medium-term or annual budgetary documentation. 
Moreover,  a  lack  of  transparency  with  respect  to  such  units  limits  the  ability  of 
parliaments and the public to exercise effective oversight of public sector policies when 
they go beyond formal budgetary provisions. Accordingly, Directive 2011/85 introduced 
an  obligation  to  present  the  combined  impact  of  extra-budgetary  units  and  funds  on 
general  government  balances and debt  in  the framework of  annual budgetary processes 
and medium-term budgetary plans. 

Directive  2011/85  emphasised  the  importance  of  publishing  information  on 
contingent liabilities and laid down specific requirements in that respect. Contingent 
liabilities  are  potential  liabilities  that  could  become  actual  government  liabilities  if 
specific  conditions  prevail.  The  timely  availability  of  comprehensive  information  on 
them helps policy-makers understand and possibly mitigate the extent of risks associated 
with  the  build-up  of  governments’  explicit  and  implicit  obligations.  Since  the 
materialisation  of  such  obligations  as  government  deficit  and  debt  is  contingent  on 
uncertain future events, they are not recorded in core national accounts and do not affect 

10   Examples  of  ‘reclassified’  bodies  may  include  extra-budgetary  funds,  hospitals,  universities, 

broadcasting corporations, railways, ‘bad banks’, etc. 

11 

 
 
                                                           
government  deficit  and  debt.  The  probability  of  their  materialisation  is  low  in  good 
economic  times,  but  likely  to  increase  in  the  downturn  phase.  As  with  extra-budgetary 
general government units, accessing information on the extent of such liabilities is partly 
a  matter  of  ensuring  the  ability  of  parliaments  and  the  public  to  exercise  effective 
oversight  of  all  public  sector  policies,  not  only  of  items  formally  covered  by  budgets. 
Accordingly,  Directive  2011/85  introduced  some  requirements  in  this  area,  which  the 
task force developed at technical level. This resulted in: 

  common  definitions  in  terms  of  national  accounts,  so  that  comparable  data  are 

compiled across Member States; and 

  agreement that information on contingent liabilities should be submitted annually 

to Eurostat, which publishes the data in its database.11  

The Directive requires Member States to publish information on  tax expenditures, 
which  helps  to  improve  fiscal  planning  and  inform  the  public  debate.  Tax 
expenditures may have a significant impact on the economy and public finances. Timely 
and  detailed  data  on  the  expected  impact  of  existing  and  planned  tax  expenditures  not 
only  make  it  much  easier  to  identify  areas  in  which  the  current  tax  system  could  be 
improved,  but  also  improve  annual  and  medium-term  fiscal  planning.  Consequently,  it 
was  felt  appropriate  to  include  in  the  Directive  a  requirement  to  publish  detailed 
information  on  the  impact  of  tax  expenditures  on  revenues.  However,  unlike  other 
provisions covered in this section, that general requirement was not further specified by 
means of a detailed template, although the Commission did issue a guidance note12 that 
provided  Member  States  with  recommendations  as  regards  the  coverage  and  level  of 
detail of the tax expenditure information. 

3.1.2.  Main developments 

The analysis below gives an overview of the transposition and implementation, and other 
developments  relating  to  the  statistics,  accounting  and  transparency  provisions  of 
Directive 2011/85. 

Public accounting  

Directive  2011/85  underlines  the  need  for  comprehensive  and  consistent  reporting 
systems  that  are  subject  to  internal  control  and  independent  audits.  In  particular, 
Article 3(1) provides that ‘Member States shall have in place public accounting systems 
comprehensively  and  consistently  covering  all  sub-sectors  of  general  government  and 
containing the information needed to generate accrual data with a view to preparing data 
based on the ESA standard. Those public accounting systems shall be subject to internal 
control and independent audits’. The consistency and comprehensiveness of such systems 
is  also  stressed  in  the  second  part  of  Article  12,  which  requires  the  ‘consistency  of 
accounting rules and procedures, and the integrity of their underlying data collection and 
processing systems’. Given the need for a benchmark for assessing the consistency and 

11  For  more  information,  see:https://ec.europa.eu/eurostat/web/government-finance-statistics/contingent-

liabilities  

12   Note to the Economic Policy Committee, July 2013. 

12 

 
 
 
                                                           
comprehensiveness  of  public  accounting  systems,  Article 16(3)  tasked  the  Commission 
with  assessing  the  suitability  of  the  International  Public  Sector  Accounting  Standards 
(IPSASs) for the Member States.  

The credibility of EU budgetary surveillance hinges crucially on reliable budgetary 
and financial reporting,  which  explains why so  much effort has been  made in this 
area. Given the importance of ESA/EDP statistics for the proper functioning of the EU 
fiscal  framework,  the  public  accounting  provisions  in  Directive  2011/85  are  explicitly 
linked to the ability to generate accrual data with a view to preparing data based on the 
ESA/EDP  standard. EDP statistics were well regulated even before the  crisis  and other 
legal acts affecting their production were adopted at around the same time as Directive 
2011/85, in particular: 

  Regulation  (EU)  No  679/2010  amending  Regulation  (EC)  No  479/2009  as 
regards  the  quality  of  statistical  data  in  the  context  of  the  EDP,  which  entitled 
Eurostat,  in  the  context  of  methodological  visits  to  Member  States,  to  have 
access to the accounts of general government entities; and  

  Regulation  (EU)  No  1173/2011  on  the  effective  enforcement  of  budgetary 
surveillance in the euro area, which introduced sanctions for the manipulation of 
statistics. 

Thanks  to  these  efforts,  the  quality  of  EDP  deficit  and  debt  data  has  improved 
considerably in recent years. The strengthening of the legal framework supporting the 
production of EDP statistics led to considerable improvements in the area, as outlined in 
the Commission’s (Eurostat’s) annual reports on the quality of EDP data to the European 
Parliament  and  the  Council  (e.g. European  Commission,  2019b).  Member  States’ 
production  of  EDP  statistics  is  subject  to  close  scrutiny  by  Eurostat,  which  makes 
periodical  visits13  and  issues  country-specific  advice  on  request  by  national  statistical 
offices.14 When Eurostat has doubts as to the correct application of the rules, it can issue 
a reservation on EDP deficit or debt data reported by a Member State, or amend the data. 
However, these interrelated developments make it more difficult to separate the impact of 
Directive 2011/85 from other developments in this field. 

The auditing of public accounts is extensively regulated in all Member States, with 
approaches varying depending on the specificities of the sub-sectors of government 
or  individual  units.  Most  Member  States  have  very  comprehensive  legislation 
regulating  production,  and  internal  and  external  audit  of  the  public  accounts,  with 
national  supreme  audit  offices  playing  a  key  role  as  independent  external  auditors. 
Budgetary units of central government are predominantly subject to auditing by national 
courts of auditors, national audit offices or equivalent supreme audit institutions (SAIs). 
Regional  courts  of  audit  and  audit  offices  are  also  important  in  countries  with 
sub-national levels of administration. In some Member States, local governments and/or 
social security funds are audited by certified private audit firms, sometimes on behalf of 
the national SAI and with auditors chosen through public procurement procedures.  It is 
more common to charge certified private auditors with the auditing of public companies 

13   For more information on such visits, see:  

https://ec.europa.eu/eurostat/web/government-finance-statistics/excessive-deficit-procedure/eurostat-
edp-visits-to-member-states  

14   For more information on country-specific advice, see: 

https://ec.europa.eu/eurostat/web/government-finance-statistics/methodology/advice-to-member-states  

13 

 
 
                                                           
 
that  are  included  under  general  government  for  national  accounts  purposes.  Directive 
2011/85  recognises  that  this  division  of  responsibilities  between  SAIs  and  certified 
private  auditors  is  at  the  discretion  of  the  Member  States  and  it  is  often  influenced  in 
practice  by  factors  such  as  company  size,  degree  of  government  ownership,  state 
financing and legal form, with SAIs frequently having specific rights with respect to such 
entities.  In  some  Member  States,  SAIs  are  ultimately  responsible  for  auditing  all  units 
classified under general government or, even more broadly, all public sector units.15 With 
respect  to  internal  control,  the  situation  is  even  more  diverse,  as  Member  States  have 
different approaches to the degree of centralisation and how this function is implemented 
in  practice.  All  Member  States  have  arrangements  for  internal  control  and  independent 
audits  of  public  accounts;  these  generally  differ  according  to  sub-sector  and  the 
specificity of the unit in question. 

The  impact  of  Directive  2011/85  is  clearly  visible  when  it  comes  to  public  sector 
accounting  as  such,  where  it  has  prompted  work  on  a  common  set  of  accounting 
standards.  As  mentioned  above,  the  Commission  was  tasked  with  assessing,  by 
31 December 2012, the suitability of the  IPSASs  for the Member States.  In response, it 
produced  a  report  to  the  European  Parliament  and  the  Council,  Towards  implementing 
harmonised  public  sector  accounting  standards  in  Member  States:  the  suitability  of 
IPSAS for the Member States.16 It found that governance, conceptual and technical issues 
meant  that  the  IPSASs  at  the  time  were  not  suitable  for  direct  implementation  in  the 
Member States.17 It also made the case for developing European public sector accounting 
standards  (EPSASs),  using  the  IPSASs  as  a  reference,  and  concluded  that  ‘[t]he 
Commission will further develop the strategy outlined in this report, taking into account 
resource  constraints,  in  line  with  its  responsibilities  under  the  Treaties’.  In  2013,  the 
Commission  launched  work  on  EPSASs  geared  to  improving  the  transparency  and 
comparability  of 
introduction  of  harmonised 
accruals-based public sector accounting in the EU. The main benefit would be a firmer 
basis for understanding the financial position and performance of public sector entities at 
all  levels.  This  has  the  potential  to  improve  evidence-based  decision-making  and 
accountability at EU, national and sub-national levels. In addition, it would enhance the 
integration  and  efficiency  of  capital  markets,  the  analysis  of  public  finances  and  also 
provide more efficient ways of producing statistics and addressing potential risks. 

reporting 

financial 

through 

the 

The work on EPSAS is currently proceeding in two phases:  

(i)  increasing fiscal transparency in the short to medium term by encouraging and 
supporting accruals reforms in the Member States, while in parallel developing a 
draft EPSAS framework (Phase 1), with a view to  

(ii)  addressing  comparability  within  and  between  Member  States  in  the  context  of 

the EPSAS initiative (Phase 2). 

15   The Member States’ different approaches as regards auditing standards and scope, and accounting and 

reporting standards have been detailed in a study carried out on behalf of the Commission: 
https://ec.europa.eu/eurostat/documents/1015035/4261806/study-on-public-accounting-and-auditing-
2012.pdf 

16   https://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2013:0114:FIN:EN:PDF 
17   Since the 2013 IPSAS report, IPSAS has developed further, addressing in particular the concerns that 
the Commission had expressed on its governance and the lack of a conceptual framework, and making 
progress on many technical public-sector-specific accounting issues. 

14 

 
 
                                                           
 
Following  the  adoption  of  the  IPSAS  report,  the  services  of  the  Commission  have 
continued  their  work  on  EPSAS.  The  progress  has  been  summarised  in  a  dedicated 
Commission  Staff  Working  Document18  published  in  June  2019.  The  Staff  Working 
Document showed how the issues identified in the IPSAS report have been addressed. It 
concluded that during Phase 1, the readiness of the Member States to implement accrual 
accounting in their public sector has increased, while significant progress had also been 
made  on  the  necessary  technical  preparations  for  taking  the  project  forward.  There  is 
growing acknowledgment of the benefits of accrual accounting for government entities in 
the Member States, and of comparable financial accounting and reporting practices. The 
EPSAS work has involved in particular: 

  engaging 

in  systematic  communication  with  policy-makers,  governments, 

auditors, accountancy experts, academics and other stakeholders;  

  setting-up  an  EPSAS  working  group 

involving  Member  State  experts 

representing all levels of government and the key EU and global stakeholders;19  

 

issuing  guidance  for  the  first-time  implementation  of  accruals  accounting  by 
public  sector  entities,  developing  the  EPSAS  conceptual  framework  and 
analysing key public sector specific accounting issues;  

  collecting the evidence base for a future impact assessment; and  

 

in  cooperation  with  the  Commission’s  Structural  Reform  Support  Service, 
providing  financial  support  in  the  form  of  grants  and  technical  assistance  to 
beneficiaries conducting national public sector accounting reforms.  

The  Council  has  issued  several  conclusions  on  public  sector  accounting  since  the 
adoption  of  the  IPSAS  report.  In  particular,  it  has  encouraged  the  Commission  to 
engage actively various stakeholders and provide the Member States with technical and 
financial  support.  It  has  concluded  that  the  work  on  EPSAS  should  be  informed  by  a 
detailed impact assessment.20 In 2019, the Council recognised the progress made in this 
area.21  The  European  Parliament  also  noted  the  ongoing  efforts  to  enhance  the 
transparency and comparability of public accounts by developing EPSAS.22  

The  EPSAS-related  work  has  already  brought  tangible  benefits  for  the  Member 
States  and  had  positive  spillovers  beyond  the  EU.  The  Commission’s  approach  has 
had  direct  and  indirect  effects,  such  as  supporting  IPSAS  development  work  and 
informing debates on government accounting reforms in a number of Member States. In 
recent  years,  around  a  third  of  the  Member  States23  have  reported  reforms,  either  to 
improve  their  existing  accrual  accounting  and  associated  (e.g. budgeting)  systems  or  to 

18 https://ec.europa.eu/eurostat/documents/9101903/9823491/EPSAS_Progress_Report_2019.pdf  
19   For related documents, see: https://ec.europa.eu/eurostat/web/epsas/expert-groups 
20   http://data.consilium.europa.eu/doc/document/ST-14011-2017-INIT/en/pdf.  By  way  of  preparation, 
Eurostat  has  already  commissioned  a  series  of  studies,  including,  for  example,  a  2014  study  on  the 
potential impacts of implementing accrual accounting and analysis on IPSAS standards: 
https://ec.europa.eu/eurostat/documents/1015035/4261806/EPSAS-study-final-PwC-report.pdf  

21   https://data.consilium.europa.eu/doc/document/ST-13962-2019-INIT/en/pdf  
22 https://www.europarl.europa.eu/doceo/document/TA-8-2016-0248_EN.pdf  
23   Bulgaria, Czechia, Denmark, Estonia, Finland, some of the German  Bundesländer (e.g. Hamburg and 

North Rhine-Westphalia), Hungary, Italy, Latvia, Poland, Slovenia and Spain. 

15 

 
 
                                                           
 
implement  accrual  accounting.  Almost  all  Member  States  considered  as  having  less 
advanced  government  accounting  have  either  started  to  modernise  their  public  sector 
accounting  systems  (e.g. Cyprus,  Malta)  or  are  preparing  to  do  so  (e.g. Greece, 
Luxembourg). More recently, Ireland has also taken steps to modernise its public sector 
accounting.  Such  reforms  correspond  to  the  aim  of  Article  3(1)  of  Directive  2011/85 
insofar as they transform cash-based, mixed or otherwise fragmented public accounting 
systems to deliver complete, coherent and harmonised accruals-based public accounting 
systems. The Commission’s efforts in this area are also compatible with the work of the 
IMF, the OECD and the World Bank on public sector accounting reform, and go in the 
same direction as public accounting reforms elsewhere in the world. 

Stakeholders  consider  the  lack  of  a  single  EU  public  accounting  standard  and  the 
lack  of  common  national  standards  as  the  main  difficulties  in  implementing 
Directive 2011/85. The Commission surveyed the finance ministries, who in most cases 
set  the  national  standards  and  prepare  the  accounts.  The  respondents  to  the  survey 
reported some difficulties with the implementation of the provisions in Articles 3(1) and 
12.  While  fewer  than  half  of  respondents  experienced  no,  or  only  minor,  difficulties, 
about  a  third  considered  the  provision  to  be  rather  difficult  to  implement  and  around  a 
quarter  experienced  some  difficulties.  Among  those  experiencing  difficulties,  the  main 
reason  given  was  the  lack  of  a  single  public  sector  accounting  standard  in  the  EU, 
followed by the lack of single public sector accounting standard at national level. Among 
other  reasons,  a  few  respondents  also  referred  to  insufficient  clarity  with  respect  to  the 
definition  of  public  accounting  systems  in  Directive  2011/85.  Nevertheless,  a  clear 
majority  of  the  finance  ministries  that  responded  assessed  the  consistency  of  their  own 
accounting  rules  and  the  integrity  of  data  collection  and  processing  systems  in  their 
countries as ‘high’ or ‘very high’, with only a minority assessing this as ‘average’. 

High-frequency fiscal data 

Directive  2011/85  requires  the  publication  of  data  for  all  sub-sectors  of  general 
government,  while  allowing  flexibility  with  respect  to  the  accounting  basis.  In 
particular: 

  Article 3(2) requires the Member States to ensure: 

o 

the  timely  and  regular  public  availability  of  cash-based  fiscal  data  (or 
equivalent  figures  from  public  accounting)  for  all  sub-sectors  of  general 
government, in particular: 

  monthly data for central government, state government and social 

security funds, before the end of the following month; and  

  quarterly  data  for  local  governments,  before  the  end  of  the 

following quarter.  

o  publication of a detailed reconciliation table showing the methodology of 
transition  between cash-based (or equivalent) data and data based on the 
ESA standard; and  

  Article  4(7)  requires  the  Commission  (Eurostat)  to  publish  Member  States’ 

quarterly deficit and debt levels every three months. 

16 

 
 
 
Directive  2011/85  established  a  reporting  system  that  removes  the  differences 
between  national  budgetary  reporting  and  ESA  with  respect  to  the  perimeter  of 
general  government.  As  discussed  in  Section 3.1.1,  national  budgetary  data  and  fiscal 
outcomes  based  on  ESA/EDP  principles  could  differ  significantly.  If  not  properly 
monitored  or  taken  into  account,  these  differences  constitute  a  source  of  fiscal  risk. 
Ideally,  high-frequency  (monthly  and  quarterly)  monitoring  should  be  based  fully  on 
ESA principles to rule out deviations from fiscal targets expressed in terms of ESA/EDP 
deficit  and  debt,  or  ensure  that  deviations  are  corrected  promptly  when  they  occur. 
However, a number of Member States considered such a requirement disproportionately 
burdensome at the time the Directive was being discussed. As a result, the requirements 
in Directive 2011/85 seek to ensure that one of the two major sources of divergence (the 
perimeter of general government) is removed in the national high-frequency publications. 
As  further  explained  in  recital  7,  it  is  possible  to  rely,  where  justified,  on  suitable 
estimation  techniques  based  on  a  sample  of  bodies  when  compiling  the  data,  with  a 
subsequent  revision  using  complete  data.  At  the  same  time,  the  published  data  are  in 
most (but not all) cases cash-based, differently from ESA/EDP reporting, which is based 
on  accrual  principle.  Directive  2011/85  also  allowed  Member  States  to  use  equivalent 
figures  from  public  accounting  if  cash  data  were  not  available;  a  minority  of  Member 
States  made  use  of  this  possibility  by  publishing  accrual  or  mixed  cash/accrual  data. 
Using  accrual  input  data  could  further  reduce  differences  between  data  required  by 
Directive  2011/85  and  ESA/EDP  outcomes,  while  such  differences  can  be 
comprehensively  explained  by  means  of  statistical  accrual  adjustment.  Nevertheless,  in 
some  circumstances  the  availability  of  cash  data  may  bring  an  additional  advantage  in 
terms of signalling possible liquidity problems in times of market distress. 

More  than  half  the  Member  States  have  specific  legal  provisions  to  back  the 
publication  of  high-frequency  data.  Among  the  Member  States  that  have  introduced 
such  provisions,  a  majority  did  so  in  laws  regulating  the  budgetary  area;  a  minority 
introduced  such  requirements  in  ministerial  decrees  and  circulars.  The  remaining 
Member States did not introduce explicit legal provisions on publishing the data.  

Overall, the publication requirements are well implemented in the Member States. 
All  Member  States  publish  the  high-frequency  data,  although  in  a  few  cases  coverage 
seems  to  be  incomplete  and  data  may  be  published  with  delays.  In  most,  the  data  are 
published on the finance ministry website, in around a third on the website of the national 
statistical  office  and,  in  a  few  cases,  on  the  websites  of  the  treasury  or  specialised 
budgetary offices. While Eurostat tries to keep the list of websites24 up to date, Member 
States sometimes fail to notify changes promptly, resulting in obsolete links.   

Directive  2011/85  aimed  to  reduce  gaps  in  data  availability.  Its  requirements  were 
partly  a  response  to  the  uneven  data  availability  observed  across  the  EU,  with  timely 
public reporting on budgetary execution still very limited in many Member States at the 
time  of  its  adoption.  In  recent  years  the  budgetary  authorities  in  a  number  of  countries 
have  made  considerable  efforts 
transparency  and  facilitate 
accountability, in particular by publishing high-frequency analytical reports. While such 
reports are now published in most Member States, they often follow national budgetary 
definitions.  

improve  overall 

to 

24   https://ec.europa.eu/eurostat/documents/1015035/8610964/Listing-of-national-websites.pdf  

17 

 
 
                                                           
The visibility of data published in accordance with  Directive 2011/85  is  sometimes 
low,  with  the  domestic  debate  focusing  on  national  budgetary  concepts.  The  initial 
differences  in  transparency  with  respect  to  budgetary  reporting  also  resulted  in 
differences in the implementation of Directive 2011/85. In a few Member States in which 
the public reporting systems were created or substantially redesigned after the adoption 
of Directive 2011/85, publications have filled the gap and are better known to the public 
and  media.  However,  in  many  Member  States  that  had  well-known  national  budgetary 
publications previously, publications to comply with Directive 2011/85 were sometimes 
created  as  a  separate  reporting  exercise  and  are  considerably  less  known,  as  a  rule. 
Moreover, very few of such publications attempt to explain in a comprehensive manner 
the  differences  between  the  national  publication  and  ESA  concepts.  This  may  have 
affected the visibility of data: close to half of the publishing authorities assess the data to 
be  of  some  interest  to  users,  while  one-third  assess  the  interest  as  limited;  only  in  a 
minority of Member States the publishing authorities assess that data are of great interest 
to users. 

Another reason for differences in the degree of public awareness may lie in the level 
of detail of published data. As mentioned above, the requirements in Directive 2011/85 
were developed in more detail in the report from the task force. While the report did not 
alter the minimum requirements (publication of at least an overall balance, total revenue 
and  total  expenditure),  it  encouraged  Member  States  to  publish  more  detailed 
breakdowns  by  providing  an  indicative  split  by  economic  categories.  However,  in 
practice  around a third of the Member States restrict  the information  made available to 
the  minimum  required  by  Directive  2011/85  (i.e. total  revenue,  total  expenditure  and 
balance  of  each  sub-sector),  while  two  thirds  provide  additional  information.  However, 
the  level  of  detail  varies  considerably  across  countries.  Where  more  detailed  data  are 
available, the publishing institutions tend to assess the degree of interest in the data to be 
higher, but this is not always the case and there are notable exceptions. 

that 

the  data 

High-frequency  data  are  sometimes  considered  a  source  of  disproportionate 
administrative  burden,  despite  the  possibility  of  using  estimates.  Some  surveyed 
requirements  constitute  a  disproportionate 
stakeholders  argued 
administrative burden in return for uncertain benefits for users.  It is worth noting that, 
according  to  recital  7  of  Directive  2011/85,  where  justified,  timely  publication  of  data 
could rely on suitable estimation techniques. A large majority of Member States use such 
estimates to  various degrees, typically to  cover small public bodies and less  significant 
extra-budgetary  funds,  where  only  annual  source  data  may  be  available.  Only  a  few 
Member  States  do  not  use  estimates,  usually  relying  on  comprehensive  public  sector 
accounting systems for input data. Using estimates can reduce administrative burden and 
be a second-best means of ensuring comprehensiveness. 

All Member States publish a detailed reconciliation table showing the methodology 
of  transition  between  cash-based  (or  equivalent)  data  and  data  based  on  the  ESA 
standard,  with  some  differences  in  terms  of  approach  and  level  of  detail.  As 
discussed  above,  the  usefulness  of  data  depends  largely  on  users’  ability  to  relate  it  to 
other  reported  outcomes  —  national  budgetary  execution,  on  the  one  hand,  and 
ESA/EDP deficit, on the other. To clarify the nature of Article 3(2) of Directive 2011/85 
and encourage consistency in the presentation of the reconciliation tables, the task force 
agreed on an indicative flowchart of the information to be provided. While all Member 
States publish some form of reconciliation table, the approaches and level of detail vary 

18 

 
 
significantly. By far the majority base the reconciliation table on the flowchart agreed by 
the task force.  

In  addition  to  high-frequency  data  according  to  national  definitions,  Eurostat 
publishes  quarterly  deficit  and  debt  data  for  all  Member  States  according  to  the 
ESA/EDP  standard.  In  recent  years,  Eurostat  has  significantly  expanded  the  range  of 
integrated  quarterly  data  on  government  finance  statistics,  providing  a  timely  and 
increasingly high quality picture of developments concerning government finances in the 
EU.  Since  the  adoption  of  Directive  2011/85,  Eurostat  has  increased  significantly  the 
level of validation checks performed, aiming to ensure the correct statistical recording of 
major  transactions  from  the  first  quarterly  transmission  onwards  and  thereby  make  the 
data  more  relevant  for  users.  Eurostat  publishes  quarterly  (non-financial)  data  for  all 
main  ESA  categories  of  government  revenue  and  expenditure,  and  there  is  a  separate 
quarterly publication on quarterly EDP debt by instrument and sub-sector. With respect 
to quarterly data on deficit and debt according to the ESA/EDP standard, as required by 
Directive 2011/85, Eurostat releases the data gradually up to around t+113 days after the 
end of the reference quarter.25 Eurostat had already published quarterly government debt 
data  for  all  Member  States  before  the  adoption  of  Directive  2011/85,  and  a  dedicated 
press  release  since  2012.  Since  April  2014,  Eurostat  has  also  published  quarterly  press 
releases  with  respect  to  general  government  deficit  /  surplus26  (as  well  as  detailed  non-
financial and financial accounts) for all Member States. Since October 2014, Eurostat has 
collected  quarterly  non-financial  data  by  sub-sector  of  general  government.  Currently, 
about half the Member States provide quarterly government revenue, expenditure as well 
as its breakdowns by sub-sector of general government. Similarly, Eurostat has collected 
seasonally adjusted data on the quarterly deficit / surplus since 2013 and has published a 
dedicated press release since February 2014. The press release with seasonally adjusted 
data27 for EU and euro area aggregates is complemented by a Statistics Explained page28 
including seasonally and non-seasonally adjusted data for the Member States. Since April 
2016,  the  press  release  has  also  highlighted  country  data.  More  Member  States  now 
provide seasonally and working day adjusted data, bringing the total number of them to 
25. 

Directive 2011/85 requires Eurostat to publish quarterly data, while data collection 
is based on more fragmented requirements, and some data are collected on the basis 
of  a  ‘gentlemen’s  agreement’.  Article  4(7)  of  Directive  2011/85  obliges  Eurostat  to 
publish quarterly deficit and debt levels every three months. However, the corresponding 
obligation for the Member States to report the data is more fragmented. Eurostat makes 

25   Quarterly data are published in Eurostat’s database (dataset gov_10q_ggnfa for non-financial accounts 
including  deficit  and  gov_10q_ggdebt  for  debt).  Also,  press  releases  accompany  publication  of 
seasonally 
data 
(e.g. https://ec.europa.eu/eurostat/documents/2995521/10064379/2-22102019-BP-EN)  and  quarterly 
debt data (e.g. https://ec.europa.eu/eurostat/documents/2995521/10064364/2-22102019-AP-EN). 

quarterly 

adjusted 

deficit 

26   In the press release: non-seasonally adjusted data since July 2018 and seasonally and calendar adjusted 

since April 2014. 

27   Including non-seasonally adjusted data since July 2018. 
28 

https://ec.europa.eu/eurostat/statistics-explained/index.php/Government_finance_statistics_-

_quarterly_data  

19 

 
 
                                                           
use of obligations laid down in Regulation No 1221/200229, as well as obligations in the 
ESA 2010 Transmission Programme. However, those requirements do not fully cover the 
range of collected data, notably sub-sector breakdowns and seasonally adjusted data, and 
there  are  differences  with  respect  to  reporting  standards  and  deadlines.  Consequently, 
Eurostat collects some of that data on a voluntary basis under a ‘gentlemen’s agreement’, 
which  may  have  practical  implications  in  terms  of  availability  of  resources  for  data 
compilers. 

Transparency with respect to extra-budgetary bodies and funds 

Certain  public  funds,  agencies  and  corporations  may  affect  ESA/EDP  deficit  and 
debt  without  being  covered  by  regular  budgets;  this  is  why  Directive  2011/85 
requires  that  information  on  these  units  and  their  budgetary  impact  be  made 
available.  An  important  aspect  of  avoiding  ‘negative  surprises’  concerns  funds  and 
bodies that are not covered by regular central, regional or local government budgets, but 
are  classified  under  the  general  government  sector  for  the  purposes  of  ESA/EDP 
statistics. Such bodies can affect the fiscal outcomes that are relevant for EU budgetary 
surveillance  and  national  fiscal  rules,  while  not  always  being  covered  by  planning 
documents  and  associated  accountability  procedures  applicable  to  budgetary  units. 
Accordingly, Article 14(1) of Directive 2011/85 lays down that ‘[w]ithin the framework 
of the annual budgetary processes, Member States shall identify and present all general 
government bodies and funds which do not form part of the regular budgets at sub-sector 
level,  together  with  other  relevant  information.  The  combined  impact  on  general 
government  balances  and  debts  of  those  general  government  bodies  and  funds  shall  be 
presented  in  the  framework  of  the  annual  budgetary  processes  and  the  medium-term 
budgetary plans’. 

Transparency  when  it  comes  to  identifying  the  units  classified  under  general 
government  is  good  overall,  but  uneven  across  Member  States.  The  national 
statistical  institutes  are  responsible  for  classifying  units  for  statistical  purposes,  so 
information related to sector classification usually appears on their websites. A very large 
majority of Member States make information about general government bodies available 
to the public, with various approaches: more than half (including some large ones) make 
available  lists  where  all  general  government  units  are  identified  individually,  while  a 
third  publish  lists  grouping  some  of  the  smaller  homogeneous  units  (e.g. local 
municipalities).  A  few  countries  maintain  business  registries  that  also  include  sector 
classification  for  statistical  purposes.  Given  the  importance  of  this  information  for  the 
correct implementation of EU requirements in the field of ESA/EDP statistics, Eurostat 
also publishes lists or overviews of units included in general government on its website 
as annexes to the EDP inventories.30 

29   Regulation  (EC)  No  1221/2002  of  the  European  Parliament  and  of  the  Council  of  10  June  2002  on 

quarterly non-financial accounts for general government, OJ L 179, 9.7.2002 

30   EDP inventories describe the methods, procedures and sources used by each Member State to compile 

actual deficit and debt data and the underlying government accounts. They are available at: 
https://ec.europa.eu/eurostat/web/government-finance-statistics/excessive-deficit-procedure/edp-
inventories  

20 

 
 
  
                                                           
 
The identification and presentation of such extra-budgetary bodies and funds in the 
budgetary  process  vary  across  Member  States.  Despite  the  overall  high  degree  of 
transparency with  respect  to  the lists of units classified under  general  government,  it is 
possible only in a minority of Member States to distinguish clearly, on the basis of public 
sources, between general government units that are covered by regular budgets and those 
that are not. Further progress needs to be made with respect to presenting the combined 
impact of extra-budgetary bodies and funds on general government balances and debts in 
the annual budgetary process and in the medium-term budgetary plans: less than half of 
the  Member  States  explicitly  present  the  combined  impact  on  general  government 
balances and even fewer do so for debt.  

Many  Member  States  found  Article  14(1)  of  Directive  2011/85  difficult  to 
implement.  This  emerged  from  the  stakeholder  consultation,  where  a  third  of  the 
responding  finance  ministries  considered  it  ‘very  difficult’  or  ‘difficult’  to  implement, 
and another third cited ‘moderate’ difficulties. The main reported reasons for difficulties 
relate  to  administrative  burden  on  small  units,  a  lack  of  comprehensive  data  sources, 
insufficient quality of input data and the large number of units to be covered.  

Transparency with respect to contingent liabilities 

Member States are required to publish, for all  sub-sectors of general government, 
relevant  information  on  contingent  liabilities  with  potentially  large  impacts  on 
public  budgets.  Article  14(3)  provides  a  non-exhaustive  list  of  types  of  contingent 
liability  to  be  reported:  ‘(…)  including  government  guarantees,  non-performing  loans, 
and liabilities stemming from the operations of public corporations’. Member States are 
also to publish (as a significant source of fiscal risk and, to a certain extent, an implicit 
contingent  liability)  ‘information  on  the  participation  of  general  government  in  the 
capital  of  private  and  public  corporations  in  respect  of  economically  significant 
amounts’. 

Directive  2011/85  has  contributed  to  major  progress  in  the  reporting  of  data  on 
contingent liabilities. In addition to the publication at national level, the statistical task 
force agreed that Eurostat should also collect and publish the above information (with the 
exception  of  general  government  participation  in  corporations,  which  remains  a 
nationally  published  dataset),  while  adding  to  the  list  in  Directive  2011/85  liabilities 
stemming  from  off-balance  public-private  partnerships  (PPPs).  As  a  result,  since  2015 
Eurostat  has  published  series  of  contingent  liabilities  indicators  covering  a  period  from 
2010 onwards, which is  an important step forward as regards the transparency of fiscal 
risks. More generally, Member States have taken the lead in developing these data in line 
with  Directive  2011/85  and  the  current  availability,  coverage  and  data  collection 
methodologies are advanced compared to other countries’.   

The completeness and coverage of data submitted to Eurostat vary across Member 
States and by component of contingent liability. As reported by Eurostat with regard 
to  the  2018  data  submission  (with  data  coverage  up  to  and  including  2017),31  data 
completeness  and  coverage  are  high  for  government  guarantees,  although  for  local 

31 https://ec.europa.eu/eurostat/en/web/products-press-releases/-/2-30012019-AP  

21 

 
 
 
                                                           
government guarantees data are still not available in few Member States and incomplete 
in  few  others.  As  with  guarantees,  data  completeness  and  coverage  are  good  for  off-
balance PPPs, with some shortcomings for local governments in a few cases. Information 
on non-performing loans (NPLs) still needs improvement, as data are missing for some 
Member States,  while in several  others data  coverage is  not  exhaustive.  As regards the 
submission  of  data  on  liabilities  of  government-controlled  entities  classified  outside 
general  government,  in  a  few  Member  States  data  coverage  is  not  exhaustive  for  local 
governments or for minor units. 

The  comparability  of  data  across  Member  States  is  generally  good,  but  some 
important  aspects  need  to  be  borne  in  mind.  Comparability  is  particularly  good  for 
government  guarantees,  NPLs  and  off-balance  PPPs.  For 
liabilities  of  public 
corporations,  there  are  some  differences  in  data  reporting,  notably  arising  from  the 
accounting  concepts  used  (some  countries  report  business  liabilities  and  others  the 
‘Maastricht’ liabilities). Nevertheless, Member States report significantly different levels 
of public corporations’ liabilities, because some have more entities controlled by general 
government and involved in financial services than others. Those countries report higher 
liabilities  than  those  with  few  or  no  such  entities.  For  Member  States  with  a  higher 
proportion  of  government-controlled  financial  institutions,  many  of  the  liabilities 
reported by financial institutions concern deposits held in public banks by households or 
by other private or public entities. In general, financial institutions report high amounts of 
debt liabilities; however, they also have significant assets that are not captured in the data 
collection. Another important aspect to be kept in mind is that the same fiscal risk might 
be  reflected  in  two  or  more  contingent  liability  indicators,  e.g. if  a  government 
guarantees  the  liability  of  a  public  corporation,  the  potential  risks  are  covered  by  data 
presented  both  for  ‘guarantees’  and  ‘liabilities  of  government-controlled  entities 
classified outside general government’. Therefore, evaluating the total risk by adding up 
the indicators could overestimate the potential impact. 

Graph 3.1.2: Usefulness of comparable EU data on contingent liabilities (stakeholders’ views) 

60%

50%

40%

30%

20%

10%

0%

s
r
e
w
s
n
a

f
o

e
g
a
t
n
e
c
r
e
P

FMs

NSIs

IFIs

1
Not useful 

2

3

4
Very useful 

5

Source: Stakeholders survey 

The publication of information on contingent liabilities at national level, as required 
by Directive 2011/85, has also largely improved. All Member States except France and 

22 

 
 
 
 
 
 
Greece  currently  publish  that  information  nationally.  As  agreed  by  the  task  force,  all 
indicators  required  by  Directive  2011/85  should  be  published  on  a  single  dedicated 
national webpage. All publishing countries follow this guidance and provide the data on 
a dedicated webpage of the finance ministry or the national statistical institute.32 Almost 
all  provide  data  nationally  for  all  the  indicators,  while  indicators  on  NPLs  are  still 
missing  in  a  few.  In  some  cases,  national  publication  does  not  follow  the  task  force 
guidelines,  which  specify  the  methodology  and  templates  to  be  used.  For  a  handful  of 
Member  States,  there  are  (non-significant)  discrepancies  between  the  data  published 
nationally and data published by Eurostat.  

Member  State  practitioners  broadly  concur  on  the  usefulness  of  reporting 
contingent liabilities. Most stakeholders consider the publication of the EU database on 
contingent  liabilities  as  broadly  useful  for  understanding  fiscal  risks  in  the  Member 
States  and  deem  the  list  of  contingent  liabilities  to  be  adequate  (see  Graph 3.1.2). 
Suggestions for improvements, put forward mostly (but not only) by IFIs, include adding 
the  potential  impact  of  court  decisions  and  pension  liabilities,  and,  to  a  lesser  extent, 
adding  commitments  related  to  euro  area  stability  arrangements,  implicit  guarantees  to 
the  financial  sector  and  callable  capital  of  international  organisations.  In  some  cases, 
stakeholders would welcome more detailed information, e.g. for guarantees, off-balance 
PPPs  (risk  allocation)  and  NPLs  (reporting  separately  data  related  to  defeasance 
structures). National statistical institutes found more frequently that data on liabilities of 
financial  public  corporations  should  be  published  either  net  of  assets  or  together  with 
data on assets.  

Transparency with respect to tax expenditures 

Article  14(2)  of  Directive  2011/85  requires  the  Member  States  to  publish  detailed 
information  on  the  impact  of  tax  expenditures  on  revenues,  but  the  meaning  of 
‘detailed’  is  not  specified.  To  promote  a  comprehensive  and  cross-country  consistent 
approach  to  this  requirement,  a  Commission  note  discussed  at  the  Economic  Policy 
Committee proposed guidelines as to what information on the impact of tax expenditures 
would most usefully serve the objectives of the Directive. The main recommendations in 
that note included:  

 

reporting  on  both  existing  and  planned  tax  expenditures,  coverage  of  the  whole 
general  government,  time  span  covering  at  least  two  years  (including  the  most 
recent year for which data are available and an estimate for the following year); 

  presenting the impact in monetary terms; and 

  providing  a  description  of  the  main  assumptions  used  for  the  definition  and 

calculation of tax expenditures.   

While  making  available  information  on  tax  expenditures  is  a  legal  requirement  in 
the  vast  majority  of  Member  States,  practices  vary  significantly.  In  the  absence  of 
content indications in the Directive or of a harmonised template or procedure, divergent 
practices  lead  to  uneven  transparency  and  usefulness  for  budgeting  and  fiscal  planning 

32   A list of the national websites is available at: 

https://ec.europa.eu/eurostat/documents/1015035/9532280/Listing-of-national-websites.pdf  

23 

 
 
 
                                                           
 
purposes,  thus  preventing  cross-country  comparisons.  Specifically,  differences  have 
emerged  in  terms  of  content,  granularity,  frequency  of  publication  and  the  type  of 
document in which the information is made public. 

The different approaches to tax expenditure transparency are most visible when it 
comes to the published content. Fewer than half the Member States publish information 
on  both  existing  and  new  or  planned  tax  expenditures,  while  the  remaining  publishing 
countries do so only for existing tax expenditures. The number of Member States whose 
reporting covers the whole of general government is particularly low, making up only a 
third. All Member States that publish the impact of tax expenditures do so in monetary 
terms, while over half make the underlying assumptions and methodologies available to 
the  public.  The  categorisation  of  the  tax  expenditures  is  also  diverse,  the  most  widely 
used being by tax base (the vast majority of reports) and by purpose (about half). Three 
quarters of the Member States use more than one categorisation in their publications. 

An  annual  publication  is  the  most  common  in  terms  of  frequency.  About  three 
quarters  of  the  Member  States  present  information  on  tax  expenditures  annually,  while 
others report less regularly.  

 Table 3.1. Publication of information on tax expenditures in Member States 

Country 
BE 
BG 
CY 
CZ 
DK 
DE 
EE 
IE 
EL 
ES 
FR 
IT 
NL 
AT 
PT 
SK 
FI 
LV 
LU 
LT 
RO 
HU 
PL 
SE 
UK 

Regular publications* 
X 
X 
X 

X 
X 
X 
X 
X 
X 
X 
X 
X 
X 
X 
X 
X 
X 
X 
X 
X 
X 
X 
X 
X 

Time coverage** 
t-7, t-6, t-5, t-4, t-3, t-2 
t-2 
t 
t-6, t-5 
t-1 
t-2, t-1, t, t+1 
t, t+1 
t-1, t 
t-2 
t, t+1 
t-1, t, t+1 
t+1, t+2, t+3 
t-5, t-4, t-3, t-2, t-1, t 
t-2, t-1, t, t+1 
t+1 
t-2, t-1, t, t+1, t+2, t+3 
t-1, t, t+1  
t-3, t-2, t-1 
t 
t+1 
t-1, t, t+1, t+2 
t+1 
t-3 
t-1, t, t+1, t+2 
t-4, t-3, t-2, t-1, t 

Notes: The information reported refers to the 2018 edition of tax expenditure reports. 

* Regular reporting generally refers to  an annual frequency; the exceptions are Germany (update every 2  years) and 
Denmark (where only the new tax expenditures and changes to existing ones are updated annually). 

** Year t denotes the year of publication. 

Source: Commission services based on national sources. 

24 

 
 
 
 
A  particularly  pertinent  aspect  for  fiscal  planning 
is  the  publication  of 
forward-looking  information  in  order  to  estimate  the  medium-term  impact  of  tax 
expenditures,  both  those  in  place  and  planned.  Only  about  half  the  Member  States 
present  estimates  for  future  years  and  in  most  cases  the  information  made  available 
covers only the very near future (year t+1 and in a few cases t+2). In terms of publishing 
forward-looking  information  that  benefits  medium-term  fiscal  planning  the  most,  the 
Netherlands (although only until 2016) and Slovakia can be highlighted as examples of 
best practice, as they cover the past impact of tax expenditures since year t-2 and provide 
estimates for the whole medium-term horizon (until year t+3 for Slovakia and t+4 for the 
Netherlands).  As  of  2017,  however,  the  latter  only  publishes  backward-looking 
information. 

The information on the impact of tax expenditures is mostly published as part of the 
annual  budgetary  processes,  but  in  a  few  cases  it  is  published  in  a  standalone 
document.  Over  half  the  Member  States  chose  to  incorporate  it  in  national  budgetary 
documents,  be  it  in  the  annual  budget  or  the  medium-term  plans.  A  third  publish 
standalone documents and a few make the information public in a different format on the 
finance ministry’s website. 

3.1.3.  Conclusions 

In the area of public accounting, Directive 2011/85 has helped improve the quality 
of  ESA/EDP  data  and  given  an  impetus  to  developing  public  sector  accounting 
standards  in  the  EU.  Directive  2011/85  aimed  to  improve  the  basis  for  compiling 
ESA/EDP  deficit  and  debt  data,  which  are  crucial  for  the  credibility  of  the  EU 
surveillance  framework,  while  at  the  same  time  stimulating  wider  use  of  public  sector 
accounting, recognising its potential to improve the transparency of public finances and 
efficiency of public financial management. With respect to improving the overall quality 
of  EDP  statistics,  where  the  overall  legal  framework  was  strengthened  considerably  in 
the  aftermath  of  the  sovereign  debt  crisis,  the  impact  of  Directive  2011/85  is  more 
difficult  to  disentangle  from  other  developments  in  the  field  of  EDP  statistics.  Overall, 
data  quality  has  clearly  improved  and  recent  public  sector  accounting  reforms  in  the 
Member  States  have  probably  contributed  to  that.  Nevertheless,  in  the  absence  of  a 
common  reference  standard,  sometimes  also  at  national  level,  as  reported  by  the 
stakeholders,  national  public  accounting  systems  remain  partially  fragmented,  thereby 
limiting the extent to which the aims of Directive 2011/85 in this area were met, as well 
as  the  potential  efficiency  gains.  Directive  2011/85  helped  kick-start  broader  work  on 
developing  public  sector  accounting  in  Europe,  which  also  contributes  to  the 
improvement  of  global  standards  and  governance  in  this  area.  In  recent  years,  the 
readiness  of  the  Member  States  to  implement  accrual  accounting  in  their  public  sector 
has increased, while there has been significant progress towards developing common EU 
public sector accounting standards. At the same  time, stakeholders consider the lack of 
common EU public sector accounting standards as one of the difficulties in implementing 
that element of Directive 2011/85. 

All  Member  States  publish  high-frequency  fiscal  data,  but  practices  and  data 
visibility vary. Fiscal data that are published shortly after the end of the reporting period 
help  to  ensure  that  possible  deviations  from  the  fiscal  targets  expressed  in  terms  of 
ESA/EDP deficit and debt are detected and corrected in a timely manner. However, the 
level of detail of the published data varies, with some Member States publishing only a 
25 

 
 
 
compulsory minimum and some providing more detailed breakdowns. While ideally such 
high  frequency  reporting  should  be  based  on  ESA/EDP  standard,  Member  States 
considered introducing such a requirement too burdensome at the time of discussing the 
Directive.  The  eventually  agreed  requirement  is  to  publish  monthly  data  for  all  sub-
sectors of  general  government (except  for local  governments,  for which  data should be 
released  quarterly),  which  are  only  partly  aligned  with  the  requirements  of  ESA/EDP 
statistics, with the alignment covering general government perimeter but not necessarily 
other  aspects.  On  the  other  hand,  the  incomplete  alignment  is  compensated  by  the 
timeliness  of  the  data.  The  requirement  to  publish  high-frequency  fiscal  data  certainly 
helped to improve the transparency of public finances, particularly in countries with low 
initial levels of budgetary transparency. At the same time, in a number of Member States 
the  users  seem  to  struggle  with  the  definition  that  lies  in-between  national  budgetary 
concepts  and  ESA/EDP,  resulting  in  modest  data  visibility.  The  limited  level  of  detail 
and of explanatory information may have further contributed to this. Some stakeholders 
have  consequently  expressed  concerns  about  the  administrative  burden  they  associate 
with  the  production  of  the  monthly  and  quarterly  data  required  by  Directive  2011/85, 
against  uncertain  benefits  for  the  users.  Meanwhile,  Eurostat’s  publication  of  quarterly 
deficit and debt  data based on ESA/EDP concepts has considerably improved in  recent 
years,  providing  an  alternative  balance  between  the  timeliness  and  the  quality  of 
information.  

There  is  similar  unevenness  regarding  transparency  with  respect  to  extra-
budgetary bodies and funds and their impact on deficit and debt across the Member 
States. As extra-budgetary bodies  and funds can affect  the ESA/EDP deficit,  they may 
represent a source of fiscal risk when not appropriately identified and taken into account 
at  the  planning  stage.  The  majority  of  Member  States  publish  information  about  all 
bodies  and  funds  classified  under  general  government  for  national  accounts  purposes, 
with some providing exhaustive lists and others grouping smaller units. However, in only 
a  few  countries  is  it  possible  to  distinguish  clearly  between  budgetary  and  extra-
budgetary  entities.  Further  progress  needs  to  be  made  with  respect  to  presenting  the 
combined  impact  of  extra-budgetary  bodies  on  general  government  balances  and  debt. 
The stakeholder consultation also indicated that Article 14(1) was a difficult provision to 
implement. 

In  the  area  of  contingent  liabilities,  Directive  2011/85  resulted  in  a  leap  forward 
with respect to the transparency of associated fiscal risks. Almost all Member States 
now  publish  data  on  main  types  of  contingent  liability  (government  guarantees,  off-
balance PPPs, NPLs and liabilities stemming from the operations of public corporations), 
with  minor  pending  issues  related  to  the  completeness  and  comparability  of  data.  As  a 
result,  transparency  in  this  area  of  fiscal  risks  has  significantly  increased.  Some 
stakeholders  propose  further  improving  transparency  by  adding  more  detail  to  the 
information  already  provided,  e.g. by  including  the  asset  side  of  the  balance  sheets  of 
entities  controlled  by  the  government  or  disclosing  information  on  flows  related  to 
contingent liabilities, as opposed to only stocks. Other ideas put forward include covering 
the potential impact of court decisions or liabilities related to the financial sector. 

With respect to the impact of tax expenditures, the practice is now well established 
and  the  overall  level  of  transparency  is  good,  but  the  form  and  content  of 
publications differ across Member States. The general requirement to publish detailed 
information on the impact of tax expenditures on revenues resulted in a well-established 
practice  in  most  Member  States.  Nonetheless,  in  the  absence  of  more  specific 

26 

 
 
information  requirements,  the  content  and  form  of  published  information  differ 
significantly  across  the  board,  leading  to  uneven  transparency  and  usefulness  for 
budgeting  and  fiscal  planning  purposes,  and  preventing  cross-country  comparison. 
Moreover, since there is no explicit obligation to present estimates of the medium-term 
impact of tax expenditures, which would be of substantial value for medium-term fiscal 
planning,  most  Member  States  currently  publish  only  backward-looking  or  current 
information. 

Overall, Directive 2011/85 has clearly contributed to fiscal transparency and helped 
to improve the quality of statistical information; the most visible progress has been 
in areas where work to specify the requirements was done at technical level in the 
statistical task force. While Directive 2011/85 has contributed to improving the quality 
of statistical information and the transparency of budgetary processes in many areas, the 
most  impressive  progress  relates  to  contingent  liabilities,  where  it  led  to  the 
establishment  of  a  harmonised  EU  dataset.  This  was  possible  thanks  to  considerable 
technical work done by the EU statistical community in agreeing and implementing the 
underlying  standards.  At  the  same  time,  progress  has  been  more  limited  where  no 
common technical approach was agreed, e.g. in the area of transparency with respect to 
extra-budgetary units and funds, as well as tax expenditures. Similarly, in the absence of 
a  common  EU  reference  standard  on  public  sector  accounting,  some  national  systems 
remain  fragmented.  How  much  Directive  2011/85  contributed  to  progress  in  individual 
Member  States  depended  largely  on  the  initial  level  of  transparency  or  quality  of 
underlying accounting and reporting systems, but it did help to even up transparency and 
quality of data across Member States. 

3.2.  Forecasts 

3.2.1.  General considerations 

into  practice 

that  conceptual  consensus 

Prudent  forecasting  methods  and  assumptions  are  amongst  the  cornerstones  of 
realistic  budgetary  planning  and,  thus,  of  strong  and  sustainable  public  finances. 
However,  putting 
is  challenging,  and 
performance  varies  across  Member  States  and  over  time.  Member  States’  average 
forecasting track-record in the pre-crisis era proved to be not so solid. In particular, there 
was  a  general  trend  of  over-optimism  in  preparing  both  the  macroeconomic  forecasts 
underlying  fiscal  planning  and  the  corresponding  budgetary  forecasts  (Beetsma  et  al., 
2009). That finding inspired recital 8 of Directive 2011/85, according to which ‘[b]iased 
and  unrealistic  macroeconomic  and  budgetary  forecasts  can  considerably  hamper  the 
effectiveness  of  fiscal  planning  and  consequently  impair  commitment  to  budgetary 
discipline 
forecasting  procedures, 
methodologies and models is of utmost importance for sound budgetary processes.   

(….)’.  Accordingly,  developing  appropriate 

Empirical  studies  show  that  transparent  budgetary  processes  have  a  favourable 
impact on sovereign ratings and debt service costs (see e.g. Kemoe and Zhan, 2018). 
Fiscal  transparency  involves  facilitating  public  access  to  timely,  comprehensive  and 
internationally comparable information on budgetary activities, including transparency of 
the preparation of official macro-fiscal forecasts. In that domain, as highlighted by recital 
9 of Directive 2011/85, public availability should not only encompass the regular release 
of official projections, but the underlying methodological information as well.  

27 

 
 
 
Directive  2011/85  recognises  the  importance  of  reliable  macro-fiscal  forecasts  in 
budgetary  planning.  Specifically,  it  asserts  the  guiding  principle  that  ‘Member  States 
shall  ensure  that  fiscal  planning  is  based  on  realistic  macroeconomic  and  budgetary 
forecasts’  and  accordingly  sets  certain  requirements  for  the  format  and  content  of 
national  forecasting  processes  underpinning  budgetary  planning.  As  forecasts  of 
independent bodies can provide useful benchmarks, Directive 2011/85 requires national 
authorities  to  compare  their  macroeconomic  and  budgetary  forecasts  with  the  latest 
forecasts of the Commission and, if appropriate, those of other independent bodies. There 
must be a reasoned description of significant differences between the chosen macro-fiscal 
scenario and the Commission’s forecast.  

The historical context of the proposal for Directive 2011/8533 motivated the focus on 
the early identification and management of fiscal risks. To this end, Directive 2011/85 
also requires Member States to complement their forecasts with a sensitivity analysis by 
stipulating that ‘the macroeconomic and budgetary forecasts shall examine paths of main 
fiscal variables under different assumptions as to growth and interest rates.’  

importance  of  transparency  and  regular 
Directive  2011/85  emphasises  the 
evaluation  of  past  performance.  It  requires 
institutional 
the  specification  of 
responsibilities  for  producing  macroeconomic  and  budgetary  forecasts  and  the  public 
release  of  the  macroeconomic  and  budgetary  forecasts  prepared  for  fiscal  planning, 
including  ‘the  methodologies,  assumptions  and  relevant  parameters  underpinning  those 
forecasts.’  To  improve  the  quality  of  the  projections  and  promote  accountability, 
Directive 2011/85 also calls for ‘regular, unbiased and comprehensive evaluation’ of past 
forecasting  performance,  including  ex  post  evaluations.  If  such  evaluations  detect  a 
possible significant bias affecting macroeconomic forecasts over a period of at least four 
consecutive  years, the Member State  concerned is required to take the necessary action 
and make it public. 

It  is  essential  to  note  that  the  provisions  on  forecasts  in  Article  4  of  the  Directive 
seek  to  cover  both  macroeconomic  and  budgetary  forecasts  whenever  they  are 
produced for fiscal planning purposes, namely with respect both to annual budgets 
and medium-term planning documents. In other words, the aim of Directive 2011/85 
has been to put in place a set of basic procedures and practices that Member States follow 
systematically  in  the  production  and  publication  of  their  forecasts.  While  the  default 
expectation in the context of Directive 2011/85 is that the outcomes of the key national 
budgetary documents reflect forecasting requirements, in some cases this can be done, to 
some  extent,  via  documents  prepared  for  EU  fiscal  surveillance  purposes,  i.e.  stability 
and convergence programmes (SCPs) or draft budgetary plans (DBPs) for the euro-area 
Member States.  

Overall,  the  Directive  provisions  set  out  in  Article  4  aim  to  orient  the  budgetary 
authorities  of  the  Member  States  towards  basing  their  fiscal  planning  on  prudent 
forecasts,  without  redefining  existing  national  timeframes  and 
institutional 
responsibilities.  In  that  respect  Regulation  No  473/2013,  which  applies  to  euro-area 
Member  States  only,  goes  much  further,  most  notably  by  establishing  a  common 
budgetary  timeline  and  introducing  the  obligation  for  the  macroeconomic  forecast 
underlying both draft annual budgets and national medium-term fiscal plans to be either 

33  see Section 2. 

28 

 
 
                                                           
produced or endorsed by independent bodies.34 Thereby Regulation No 473/2013, and in 
particular the independent endorsement requirement, influenced considerably the design 
of the forecasting procedure in the Member States concerned, and their adherence to the 
principle  of  realism.  Therefore,  in  a  number  of  respects,  it  is  very  challenging  to 
disentangle  the  specific  impact  of  the  Directive  from  the  influence  of  other  relevant 
factors.  

3.2.2.  Main developments 

In  the  area  of  forecasting,  Directive  2011/85  essentially  set  additional  content 
requirements for the presentation of the macroeconomic and budgetary projections 
and sought to boost their transparency. Applying the provisions included in Article 4 
typically  required  some  fine-tuning  of  previously  existing  approaches  and  procedures, 
without, however, amounting to a fundamental revamp of the forecasting process. Given 
the specific and technical nature of the provisions in question, Member States transposed 
them  through  a  combination  of  legislative  vehicles  and  other  types  of  measures.  While 
the majority of Member States amended their organic laws on public finances to cater for 
the  transposition  of  some  elements,  in  several  cases  legal  acts  ranking  lower  in  the 
domestic  legal  order,  or  administrative  acts,  had  to  be  amended  (e.g.  government  or 
ministerial  decrees,  budgetary  circulars,  cooperation  agreements),  as  those  were  the 
established vehicles for regulating forecasting issues.  

An overview of transposition and implementation developments by the main forecasting 
provisions of Directive 2011/85 follows hereinafter.  

Principle of realism 

Member States must adhere to the principle of realism in their budgetary processes. 
To  achieve  this  objective,  Article  4(1)  of  Directive  2011/85  requires  them  to  base  the 
budgetary planning on the most likely macro-fiscal or on a more prudent scenario. The 
overwhelming  majority  of  Member  States  have  chosen  to  codify  that  principle  in  their 
legislation.  Compliance  with  it  in  practice  cannot  be  measured  directly,  but  it  can  be 
proxied by recent empirical studies on the evolution of forecast prudency.   

There is some preliminary empirical evidence that the prudency of official forecasts 
has improved recently. As regards the track-record of national macroeconomic forecasts 
in the last two decades, Jankovics and Sherwood (2017) use information from the SCPs 
(as  a  proxy  for  national  fiscal  plans)  for  a  subset  of  Member  States  and  provide  some 
illustrative calculations through the aggregation of the sign of the forecast  bias for  real 
GDP (as measured by the mean forecast error) before and after the Great Recession (and 
consequently  the  recent  wave  of  European  economic  governance  reform).  A  small 
optimistic bias was found in the first period (2000-2007) under review, which turned into 

34 At the same time, it obliges euro-area Member States (only) to specify whether the budgetary forecasts 

have been produced or endorsed by an independent institution. 

29 

 
 
  
 
                                                           
a  slightly  conservative  stance  in  the  second  period  (2014-2016).35  As  regards  national 
budgetary forecasts, based on a very similar methodology, European Commission (2014) 
reported an optimistic bias for the headline balance projections, to the tune of 0.4 pp of 
GDP  on  average.  Turning  to  more  recent  years,  overview  reports  by  the  Commission 
(2016a,  2017,  2018)  found  that  EU  average  headline  balances  turned  out  better  than 
forecast  in  the successive vintages of SCPs by 0.3-0.4 pp. of GDP over  the 2015-2017 
period, i.e. again, a moderate reversal of the bias.  

However,  a  number  of  important  caveats  call  for  caution  in  interpreting  those 
results.  First,  as  mentioned  previously,  there  have  been  other  important  pieces  of  EU 
legislation  apart  from  Directive  2011/85  (most  notably,  the  independent  production  or 
endorsement  requirement  set  out  in  Article  4(4)  of  Regulation  473/2013).  They  could 
have had more impact on the national authorities’ forecasting behaviour. Secondly, only 
a short period has elapsed since the entry into force of the fiscal governance reforms at 
both  European and national  level.  Thirdly, policy-makers tend to  be more optimistic in 
good  economic  times,  while  forecasting  more  cautiously  in  bad  times.  The  slow  and 
protracted recovery in many Member States after the depths of the crisis could therefore 
have played a role in the observed reversal of the sign of the forecast error. 

      Graph 3.2.1: Evolution in forecast prudency compared to the pre-crisis period (stakeholders’ 
views)  

Macroeconomic forecasts 

Budgetary forecasts 

40% 

60% 

40% 

60% 

No change

More plausible

No change

More plausible

Source: Stakeholder survey 

Nonetheless,  stakeholders’  views  corroborated  the  mildly  positive  assessment 
emerging  from  the  empirical  studies.  A  significant  number  of  Member  State  experts 
and practitioners were of the view that forecasts had become more plausible recently, in 
particular if compared to the years leading up the crisis (2000-2007). As can be seen in 
Graph  3.2.1,  40%  of  the  surveyed  stakeholders  saw  such  an  improvement  in 
macroeconomic  forecasts,  and  30%  in  budgetary  forecasts  (noteworthy,  no  entity 
assessed that the situation had deteriorated). A similar conclusion can be drawn from the 

35 The quoted study presents the results for two subgroups of Member States (euro-area economies with or 
without  an  independent  forecaster),  but  it  also  makes  possible  a  comparison  of  the  accuracy 
projections in the two periods without the applied distinction.  

30 

 
 
 
 
 
                                                           
Commission’s assessments of the plausibility of the macroeconomic forecasts underlying 
SCPs and DBPs. Slightly over three-quarters of its assessments issued between autumn 
2015  and  spring  2018  concluded  that  the  macroeconomic  scenarios  were  plausible  or 
even  conservative,  while  the  remaining  quarter  assessed  the  scenarios  as  optimistic, 
which primarily concerned the outer  years of the medium-term  forecast  horizons in the 
SCPs36.   

Transparency through forecast comparisons and explanations  

The  transparency  of  the  national  forecasts  could  be  improved  by  systematic 
comparisons  and  explanations  for  major  differences  vis-à-vis  the  Commission’s 
forecasts.  The  Commission’s  macroeconomic  and  budgetary  forecasts,  in  particular  its 
external  assumptions  and  projections  for  foreign  trade,  have  traditionally  served  as  a 
numerical  benchmark  for  national  macro-fiscal  scenarios.  Directive  2011/85  sought  to 
increase transparency by obliging the national authorities – pursuant to Article 4(1) – to 
present  explicit  comparisons  of  their  forecasts  with  ‘the  most  updated  forecasts  of  the 
Commission’ and to provide explanations of ‘significant differences’.  

Graph 3.2.2: Explanations about the differences between the Member 
State’s macro-fiscal scenario and the Commission’s forecast (stakeholders’ 
views) 

19% 

37% 

14% 

30% 

No significant differences

Irregular

Superficial

Detailed

Source: Stakeholder survey 

36  The  Commission  uses  essentially  five  categories  in  its  assessments  on  the  realism  of  the  official 
macroeconomic scenario: i) markedly cautious; ii) cautious; iii) plausible; iv) favourable/optimistic; v) 
markedly  favourable/optimistic.  The  Commission’s  assessments  on  SCPs  are  available  at: 
https://ec.europa.eu/info/business-economy-euro/economic-and-fiscal-policy-coordination/eu-
economic-governance-monitoring-prevention-correction/stability-and-growth-pact/stability-and-
convergence-programmes_en 
euro/economic-and-fiscal-policy-coordination/eu-economic-governance-monitoring-prevention-
correction/stability-and-growth-pact/annual-draft-budgetary-plans-dbps-euro-area-countries_en. 

at:  https://ec.europa.eu/info/business-economy-

and  on  DBPs 

31 

 
 
 
 
                                                           
 
While  Member  States  have  generally  introduced  corresponding  legal  provisions 
following  the  adoption  of  Directive  2011/85,  implementation  differs.  Transposition 
was warranted also where some practice predated Directive 2011/85 without being based 
on  legal  acts,  so  as  to  anchor  the  comparison  principle  more  firmly.  However,  practice 
varies  among  Member  States.  About  a  third  have  developed  comprehensive  and 
systematic  coverage  for  such  comparisons,  which  are  currently  included  in  all  national 
fiscal planning documents. In a quarter of Member States comparisons to date have either 
been missing from a key national document (typically the annual budget documentation) 
or  they  have  covered  only  one  dimension  (typically  the  macroeconomic  projections). 
Finally,  there  are  still  a  number  of  countries  where  relevant  practice  has  not  been 
established  yet,  for  example  because  of  the  very  recent  introduction  of  transposing 
provisions in the domestic legal order or the lack of proper national provisions.  

When  comparison  of  national  with  Commission  forecasts  reveals  significant 
differences,  Directive  2011/85  requires  that  these  be  ‘described  with  reasoning’. 
Assessing  the  appropriateness  of  this  provision  as  set  out  in  Article  4(1),  which  is 
arguably rather general, would require a survey of how Member States have implemented 
it  in  practice.  However,  that  task  is  objectively  limited  by  the  fact  that  in  many  cases 
there have been no major differences between the national and Commission projections 
in the recent period. Consequently, the lack of explanatory texts may simply reflect the 
convergence  of  views  on  the  forecasts.  The  stakeholders  share  that  interpretation  (see 
Graph  3.2.2).  A  number  of  respondents  from  Member  States  with  episode(s)  of 
significant  differences  highlighted  timing  differences  and  sequencing  as  important 
factors. Specifically, in case of both medium-term fiscal plans and draft annual budgets, 
at  the  time  of  the  preparation  of  the  national  baseline  scenario,  the  available 
Commission’s forecasts are already four or five months old and thus based on different 
information.  If  that  factor  is  the  main  reason  for  the  differences  (rather  than  e.g.  a 
different  appreciation  of  tax  elasticities  or  impacts  of  new  policy  measures),  the 
explanations  are  naturally  succinct.  Even  so,  37%  of  respondents  assessed  the 
justifications available in national documents as detailed.  

Specification of forecasting responsibility and methodological transparency  

Article  4(5)  of  Directive  2011/85  requires  Member  States  to  ‘specify  which 
institution  is  responsible  for  producing  macroeconomic  and  budgetary  forecasts’. 
Moreover, with a view to increasing transparency, Member States ‘shall make public the 
official  macroeconomic  and  budgetary  forecasts  prepared  for  fiscal  planning,  including 
the methodologies, assumptions and relevant parameters underpinning those forecasts.’ 

Specifying  responsibility  for  the  provision  of  the  official  macroeconomic  and 
budgetary forecasts was one of the least problematic elements from a transposition 
angle. The ease of transposition is reflected in the fact that the Directive  per se did not 
trigger any change in the mandates of national forecasting institutions. It rather led to the 
formalisation  of  the  existing  practices  in  the  few  cases  where  they  were  not  already 
explicitly laid down in legislation. Most notably, countries that had in the past delegated 
the production of the official macroeconomic forecasts to independent fiscal institutions 
(i.e. Austria, Belgium, Luxembourg, the Netherlands, Slovenia and the United Kingdom 
– in the latter case, the mandate also covers the fiscal baseline forecast) continued to rely 
on those arrangements.  

32 

 
 
 
Member  States  are  required  to  make  public  not  only  the  outcome  of  the  forecast, 
but also their methodology so as to allow better scrutiny of quality. While some half 
of the Member States have transposed the  related requirements into their  national  legal 
order, it is the practice, rather than legal provisions that is key to the effectiveness of that 
requirement.  In general,  explanatory documents related to the macroeconomic forecasts 
(including  in  some  cases  the  description  of  the  models  in  use)  are  typically  far  more 
available  than  information  about  budgetary  forecasting  techniques.  In  that  domain,  the 
independent  fiscal  institutions  with  the  mandate  to  produce  the  forecasts  (see  above) 
clearly constitute one type of best practice (see in particular the ‘Briefing notes’ series by 
the  United  Kingdom’s  Office  for  Budget  Responsibility  or  the  Luxembourgish 
STATEC’s series on ‘Economie et statistiques’). Another type of best practice is in place 
in a number of Member States where governments provide a rich set of information on 
both  the  macroeconomic  and  budgetary  forecasts,  including  through  self-standing 
technical  notes;  Denmark,  Ireland,  Slovakia,  and  Sweden  can  be  singled  out  in  that 
respect.  In contrast,  a handful of Member States  have made available so  far only some 
technical assumptions listed in an annex of a fiscal planning document. 

Sensitivity analysis  

A customary way to recognise and better appreciate the uncertainty inherent in the 
macro-fiscal  forecasts  underlying  policy  plans  is  to  estimate  their  sensitivity  to 
changes  in  key  parameters.  Doing  so  is  a  means  of  illustrating  ways  in  which  the 
economy  and  the  budget  might  diverge  from  the  baseline.  Such  analysis  is  typically 
carried  out  through  altering  a  number  of  key  economic  parameters  or  assumption 
judgements  in  isolation  (sensitivity  analysis),  but  other  approaches  are  also  possible 
(albeit  technically  more  challenging),  such  as  looking  at  fully-fledged  alternative 
economic scenarios or publishing the probability distribution around the central scenario 
in a ‘fan chart’. 

Directive  2011/85  requires  Member  States  to  conduct  forecast  sensitivity  analyses 
when  preparing  budgetary  documents.  Notably,  Article  4(4)  specifies  two  types  of 
shocks  to  be  investigated  as  a  minimum  (‘(…)  shall  examine  paths  of  main  fiscal 
variables  under  different  assumptions  as  to  growth  and  interest  rates.’).  It  should  be 
recalled that – with the exception of Croatia which acceded to the EU in July 2013 – all 
Member States had been preparing some sensitivity analyses as part of their SCPs long 
before Directive 2011/85 was adopted. This was part of the model structure of the SCPs, 
as defined in  the Code of Conduct37  (‘(….) in  order to  enable the Commission  and the 
Council  to  consider  the  complete  range  of  possible  fiscal  outcomes’),  with  even  more 
specifications  on the types of shocks to  be covered.  In particular, the Code of Conduct 
specifies  that  the  underlying  assumptions  about  how  revenues  and  expenditures  are 
projected to react to variations in economic variables should be shown. For non-euro area 
Member States, the analysis in the convergence programmes should include the impacts 
of different exchange-rate assumptions on the budgetary and debt position. 

A third of Member States limit themselves to providing a sensitivity analysis in their 
SCPs rather than in domestic fiscal planning documents. In some of those cases, the 

37  The  Code  of  Conduct  in  force  is  available  at:  http://data.consilium.europa.eu/doc/document/ST-9344-

2017-INIT/en/pdf ; specification on sensitivity analysis can be found on p. 21.  

33 

 
 
 
                                                           
calculations  cover  only  various  assumptions  as  to  the  GDP  trajectory  and  provide  no 
shock scenarios on interest rates. On the other hand, over half of the Member States do 
publish analysis in their national documents, in most cases with comprehensive coverage 
of  shocks.  A  few  Member  States  not  only  attach  a  sensitivity  analysis  to  their  official 
forecasts, but also issue separate reports on fiscal risks, the scope of which is much wider 
than  required  by  Directive  2011/85,  e.g.  including  risks  stemming  from  contingent 
liabilities or from operations in the financial sector.38  

Regular forecast evaluations  

Preparing  regular  evaluations  on  forecasting  performance  is  important  for  a 
number of reasons. First, analysing how outturns have evolved relative to the respective 
forecasts  allows  learning  lessons  for  future  forecasts  by  better  understanding  the 
underlying  drivers  of  the  economy  and  public  finances.  Secondly,  it  represents  a 
systematic way of measuring the performance of forecasting assumptions and models in 
use.  Last  but  not  least,  transparently  reporting  on  the  reasons  for  differences  between 
projections and outturns reinforces the accountability of the forecasting institutions.  

that  backdrop,  Article  4(6)  of  Directive  2011/85  requires 

the 
Against 
macroeconomic  and  budgetary  forecasts  for  fiscal  planning  to  be  subject  to 
‘regular,  unbiased  and  comprehensive  evaluation’.  Such  evaluations  must  be  made 
public. Directive 2011/85 also establishes the obligation for a formal follow-up where a 
significant  bias  is  detected  for  macroeconomic  forecasts  over  a  period  of  at  least  four 
consecutive  years.  The  requirements  related  to  forecast  evaluation  warrant  important 
conceptual  clarifications.  First,  dedicated,  backward-looking  evaluations  of  forecast 
accuracy  for  the  purposes  of  Directive  2011/85are  not  to  be  confused  with  and 
substituted by plausibility assessments of forward-looking projections prepared in ‘real-
time’  by  an  independent  fiscal  institution  (which  is  now  routine  in  almost  all  Member 
States). Secondly, to  be able to  detect  a possible systematic bias in  forecasting,  ex post 
evaluation should cover several forecasting rounds, thereby going beyond assessing the 
budgetary execution or forecast accuracy for a single year. Finally, it is worth noting that 
the  initially  adopted  national  transposing  measures  often  missed  some  required  design 
elements  (e.g.  coverage  of  both  macroeconomic  and  budgetary  track-record  in  the 
evaluation,  specification  of the retrospective time horizon of at  least  four years), which 
Member States had to address subsequently.  

Possible  misinterpretations  concerning  Article  4(6),  at  least  in  the  first  few  years 
after  the  entry  into  force  of  Directive  2011/85,  are  likely  to  be  one  of  the  chief 
reasons  why  so  far  less  than  half  of  Member  States  have  issued  some  form  of 
relevant publication. The stakeholder survey largely confirmed that hypothesis, as many 
institutions  (both  the  ministries  of  finance  and  IFIs)  answered  the  relevant  question  by 
citing the (forward-looking) forecast plausibility assessment carried out by the respective 
IFIs.  Concerning  the  remaining  cases,  in  roughly  a  quarter  of  Member  States,  the 
domestic transposition has already taken place (albeit admittedly quite recently), but the 
first report is yet to appear. Further progress is needed in less than one-fourth of Member 

38  In  the  UK,  this  is  a  biannual  regular  publication  by  the  independent  Office  for  Budget  Responsibility 
(‘Fiscal risk report’); in Cyprus (‘Report on financial risks’) and Latvia (’Declaration on fiscal risks’) 
it is prepared by the Ministry of Finance as part of the annual fiscal planning documentation.     

34 

 
 
 
                                                           
States,  where  the  corresponding  legislation  is  still  missing  or  lacks  some  of  the 
specifically required elements.  

In  spite  of  the  admittedly  slow  take-up  of  ex  post  forecast  evaluation,  there  are 
already some good practices in various administrative settings. The typical solution 
has been to delegate that function to an IFI. This was a natural choice in Member States 
where such a practice started even before adoption of the Directive. For example, in the 
UK,  the  OBR  has  since  2011  published  the  annual  ‘Forecast  evaluation  report’  to  take 
stock  of  the  accuracy  of  its  own  forecasts,  while  since  its  establishment  in  2007  the 
Swedish Fiscal Policy Council periodically (in every 3-4  years) included in its ‘Annual 
Report’ a dedicated section with ex post evaluations of the government’s forecasts. There 
are other Member States (Austria, Finland, Luxembourg, Portugal and Spain) where an 
IFI  had been  charged with  producing this evaluation and issued a first  report relatively 
recently.  In  Austria  and  Luxembourg,  the  specificity  is  that  the  national  fiscal  councils 
are tasked to evaluate the forecasting performance of the national forecasting institutions 
(WIFO and STATEC, respectively).  

A  few  Member  States  opted  to  have  the  forecast  evaluation  produced  by  the 
ministry  of  finance,  in  a  kind  of  ‘self-assessment’.  This  is  done  in  practice  in  the 
Member States concerned (such as Denmark, Hungary, Lithuania and Slovakia) either as 
part of the legislative documentation on the final accounts for the past budgetary year or 
as a self-standing evaluation study. In this context, Ireland’s  and  Latvia’s arrangements 
are worth singling out, because they seem more suitable to safeguarding the impartiality 
of  the  exercise:  the  government  outsourced  that  task  to  the  private  sector  by 
commissioning a study from independent economists/consultancy firms39.  

The  evaluation  reports  released  so  far  typically  cover  both  macroeconomic  and 
budgetary  forecasts  in  the  same  document.  For  stand-alone  reports,  the  exact 
frequency  of  publication  is  typically  not  laid  down  in  legislation  and,  apart  from  some 
series (see e.g. the UK and Swedish examples above), too little time has passed to be able 
to discern any clear pattern. The retrospective time span of at least four consecutive years 
is  generally  ensured  (an  interesting  case  is  the  Finnish  study,  which  investigated  the 
macroeconomic forecasting accuracy of the government over 40 years between 1976 and 
201640).  With  the  exception  of  the  Spanish  case,  the  reports  did  not  find  significant 
bias.41  

39   The  Irish  evaluation  report  is  available  at:  https://www.gov.ie/en/publication/45c92a-evaluation-of-
at: 

the-department-of-finances-macroeconomic-and-fiscal-fo/,  while 
https://www.fm.gov.lv/files/tausaimnieciba/Ex-post%20assessment%20of%20forecasts_Latvia.pdf  
40 Available in English at: https://www.vtv.fi/en/publications/fiscal-policy-evaluation-on-the-reliability-of-

the  Latvian 

one 

is 

the-ministry-of-finance-macroeconomic-forecasts-the-short-term-forecasts-of-gdp-growth-
unemployment-rate-and-inflation-for-the-years-1976-2016-under-r/  

41  In  its  first  forecast  evaluation  report  in  October  2017,  the  Independent  Authority  for  Fiscal 
Responsibility  concluded  that  the  government’s  forecasts  for  the  real  growth  rate  of  public 
consumption  (as  contained  in  the  official  macroeconomic  scenarios  for  2013-2016)  showed  a  large 
bias  as  measured  by  the  absolute  forecast  error  (the  report  is  available  in  English  at  (pp.  10-12): 
https://www.airef.es/wp-content/uploads/2018-11-15-Informe-Previsiones-Macro-ING-18-oct-
2017.pdf).  The  government  responded  with  a  public  letter  to  that  finding,  which  acknowledged  the 
bias, 
(see 
http://serviciosede.mineco.gob.es/Indeco/historico_airef.aspx).  As  a  corrective  measure,  it  laid  down 
the following commitment: if the government baseline forecast for the year-on-year growth of public 

decreasing 

concerned 

pointed 

profile 

period 

over 

but 

the 

its 

to 

35 

 
 
                                                           
 
3.2.3.  Conclusions  

The provisions in Article 4 of Directive 2011/85 chiefly set additional requirements 
for  the  format,  content  and  transparency  of  national  forecasts  prepared  for  both 
annual and medium-term fiscal planning. Those requirements have typically resulted 
in  some  fine-tuning  of  existing  approaches  and  procedures,  without,  however,  having 
necessitated a fundamental revamp of the forecasting process. Still, transposition of the 
Directive’s  provisions,  where  warranted,  proved  to  be  a  protracted  process  in  many 
Member States. It is particularly the case for ex post accuracy evaluations and, to a lesser 
extent, for forecast comparisons and sensitivity analysis. That context is the predominant 
reason why implementation can be considered patchy so far, with shortcomings linked in 
some cases to partial coverage (e.g. deliverables placed in one type of document, but not 
in others) and in others to elements that have yet to be implemented (e.g. evaluations on 
past forecasting performance).  

Overall,  the  emerging  picture  of  the  reliability  of  national  forecasts  is  mildly 
positive, as demonstrated by the preliminary empirical results on forecast accuracy 
and supported by stakeholders’ views on forecast plausibility. There have also been 
tangible gains in terms of the transparency of the forecasting process, which facilitates a 
better  understanding  of  the  forecasts’  underpinnings,  provides  comparisons  against 
independent benchmarks and enhances the accountability of the forecasting institutions.  

Against that backdrop, it must be stressed  that it is  challenging to disentangle the 
specific impact of Directive 2011/85, as those developments were also influenced by 
the requirements set out in Article 4(4) of Regulation 473/2013  and other relevant 
factors.  However,  the  continuous  implementation  of  the  requirements  of  Directive 
2011/85  (e.g.  producing  comparisons  and  sensitivity  analyses,  conducting  ex  post 
evaluations, publishing methodological information) has already improved transparency 
of  national  forecasting  processes,  and  understanding  of  the  sources  of  differences  and 
errors. Greater visibility of those elements through their more systematic inclusion in the 
national  fiscal  planning  documents,  and  in  particular  the  rigorous  ex  post  forecast 
performance evaluation  coupled with  remedy actions to address detected biases, should 
lead to further improvements in that regard.  

Finally, it is noteworthy that practitioners’ views are positive overall on the added 
value  of  the  forecast-related  provisions  under  review.  A  great  majority  of  the 
stakeholders  surveyed  see  it  as  useful  to  have  certain  EU-level  standards  for  national 
forecasts. Moreover, even some of those entities that gave a relatively low assessment of 
the value added of the forecast provisions of Directive 2011/85 highlighted their positive 
role in facilitating cross-country comparisons and improving transparency.  

consumption in real terms deviate from the consensus forecast by more than 25%, it will be adjusted to 
bring it to that 25% range. 

36 

 
 
 
 
 
 
                                                                                                                                                                            
3.3.  Numerical fiscal rules 

3.3.1.  General considerations 

Rule-based  budgetary  frameworks  are  a  key  tool  for  promoting  budgetary 
discipline,  provided  they  are  clear,  well-designed  and  backed  by  an  appropriate 
institutional  infrastructure.  Fiscal  rules  are  a  permanent  constraint  on  fiscal  policy, 
expressed in terms of a summary indicator of fiscal performance (Kopits and Symansky 
1998). Evidence shows  a recent  worldwide increase in  their use, pointing to  a  growing 
consensus  as  to  the  advantages.  Fiscal  rules  in  budgetary  frameworks  serve  several 
purposes.  By  constraining  policy  discretion,  they  can  primarily  confer  credibility  on 
macroeconomic policies, as they overtly signal the course of fiscal policy (Kopits 2001). 
They  can  limit  the  government  deficit  bias  and  contain  public  debts  (Ayuso-i-Casals 
2012;  Debrun  et  al.  2008;  Persson  and  Tabellini  2000).  Rule-based  frameworks, 
however,  have  often  been  criticised  for  being  too  rigid  and  thereby  difficult  to  comply 
with (Eyraud et al. 2018). By constraining discretionary fiscal policies, rules can limit the 
margin  of  manoeuvre  to  counteract  shocks  and  can  result  in  pro-cyclical  policies.  To 
overcome  these  shortcomings,  there  has  recently  been  a  trend  to  give  the  rules  with 
design  features  that  would  make them more flexible (Schaechter  et  al. 2012). As those 
features  added  complexity,  rule-based  budgetary  frameworks  are  now  increasingly 
backed by institutional infrastructure aimed at strengthening clarity and transparency, e.g. 
IFIs.  Evidence  shows  that  rules  with  these  design  features  and  operating  in  an 
environment  with  appropriate  institutional  infrastructure,  they  effectively  promote 
budgetary  discipline  and  counter-cyclical  fiscal  policies  (European  Commission, 
forthcoming; Badinger and Reuter 2017; Debrun et al. 2008).  

Directive  2011/85  calls  for  the  adoption  of  national  fiscal  rules  to  support  the  EU 
fiscal  framework.  Its  Chapter  IV  specifically  requires  having  in  place  the  use  of 
numerical  fiscal  rules  (NFRs)  in  the  Member  States.  The  Directive  sees  strong  and 
country-  specific  NFRs  as  a  cornerstone  of  strengthened  budgetary  frameworks.  As 
stated  in  recital  16,  the  main  underlying  rationale  for  national  rules  stems  from  the 
proven  track-record  of  rule-based  budgetary  frameworks  in  promoting  budgetary 
discipline. In the EU context, national fiscal rules are also an essential tool for ensuring 
national  ownership  of  the  EU  fiscal  framework.  Another  argument  supporting  their 
introduction  of  national  fiscal  rules  is  their  role  in  underpinning  MTBFs,  as  setting 
ceilings and targets for specific indicators contributes to medium-term policy-making. 

National  fiscal  rules  must  promote  compliance  with  EU  rules,  medium-term 
planning,  fiscal  discipline  and  countercyclical  policies.  Directive  2011/85  sets 
overarching objectives to guide the design of national NFRs and ensure consistency with 
the EU fiscal framework. Under Article 5, national fiscal rules must promote compliance 
with the EU reference values of deficit and debt set in accordance with the TFEU. As an 
important anchor for fiscal policy choices in the medium term, the same article states that 
national  fiscal  rules  must  promote  multiannual  planning,  including  adherence  to  the 
Member  State’s  medium-term  budgetary  objective.  Besides  budgetary  discipline  (see 
above), its recital   18 recognises the role of well-specified rules in avoiding pro-cyclical 
fiscal policies.  

The  Directive  requires  several  essential  features  with  a  view  to  strengthening  the 
design and compliance of rules. Article 6 lays  down a number of features to  improve 
the  design  of  national  NFRs  and  make  them  more  binding.  Thus,  NFRs  must  contain 
specifications as to the following elements:  

37 

 
 
(i)  a defined target, i.e. a clearly specified numerical value or ceiling for a ‘summary 
indicator  of  budgetary  performance,  such  as  the  government  budget  deficit, 
borrowing, debt or a major component thereof’ (as laid down in Article 2(c));  
(ii) a defined scope, i.e.    coverage  (e.g. the whole of general  government  or a sub-

sector);  

(iii)  effective  and 

timely  monitoring  of  compliance,  based  on  reliable  and 
independent by independent bodies or bodies with functional autonomy vis-à-vis 
the fiscal authorities; and 

(iv)  consequences in the event of non-compliance. 

In  addition,  Article  7  provides  that  the  rules  must  be  reflected  in  the  annual  budget 
legislation,  while  Article  12  requires  comprehensive  coverage  of  all  sub-sectors  of 
general government. Pursuant to Article 8, the NFR requirements do not apply to the UK.  

As  other  EU-level  legislative  initiatives  have  promoted  reforms  in  national  fiscal 
rules,  it  is  not  always  possible  to  disentangle  the  effect  of  the  Directive.  After  the 
adoption of the Directive, other pieces of legislation aimed to strengthen Member States’ 
budgetary frameworks by means of fiscal rules channel. These include, most notably, the 
‘six-pack’ regulations (which introduced new EU fiscal  rules that inspired the adoption 
of identical or similar rules at the national level,  e.g. the ‘expenditure benchmark’), the 
Two-Pack  Regulation  No  473/201342  (binding  the  euro-area  Member  States)  and  the 
Fiscal Compact43 (binding the euro-area and – on a voluntary basis – Bulgaria, Denmark 
and Romania). In addition, the macroeconomic adjustment programme applying to some 
Member States in the wake of the crisis required a reform of fiscal rules.  

3.3.2.  Main developments 

In recent years, both the number and the quality of national NFRs have increased 
significantly across the EU. By 2018, there were roughly twice as many rules in force in 
the EU as  there were a decade earlier, and more than three times as many  as when the 
Stability and Growth Pact (SGP) was adopted in 1997 (Graph 3.3.1). All Member States 
currently have one or more fiscal rules targeting the general government sector and/or the 
sub-national  level.  This  is  a  clear  improvement  relative  to  2011,  when  a  few  countries 
(i.e. Greece, Latvia and Malta) had none. In terms of quality, since 2011 Member States 
have  endowed  their  rules  (either  new  or  reformed)  with  significantly  stronger  features 
such  as  a  legal  basis,  binding  targets,  independent  monitoring  arrangements  and 
correction mechanisms (see Graph 3.3.2).44 

The Directive played an important role in this impressive expansion of NFRs in the 
EU  over  the  last  decade,  while  not  being  the  only  factor.  The  stakeholder  survey 
confirmed  that  it  was  an  important  driver  of  fiscal  rules’  reform,  with  other  legislation 
included  in  the  ‘six-pack’,  ‘two-pack’  and  the  Fiscal  Compact.  All  three  have  been 

42 Regulation No 473/2013 provided inter alia that compliance with all NFRs in force in euro-area Member 

States has to be monitored by national IFIs. 

43 The Fiscal Compact set an obligation for the adhering Member States to introduce in the national legal 
order  a  structural  balanced-budget  rule,  equipped  with  a  correction  mechanism  and  independent 
monitoring that should both respect common principles proposed by the European Commission. 
44 For more details, see Part IV of European Commission’s Report on public finances in the EMU 2018. 

38 

 
 
 
                                                           
credited with an important role, but stakeholders perceive the Fiscal Compact as having 
been the most significant  by  far,  as it has reportedly influenced about  half of the fiscal 
rules reforms (see Graph 3.3.3). Therefore, disentangling the specific impact of Directive 
2011/85  is  admittedly  quite  challenging.  This  can  be  illustrated  by  the  views  of  the 
finance  ministries  and  IFIs  in  the  survey.  Asked  to  assess  the  impact  of  Directive 
2011/85  on  their  national  fiscal  rules,  the  finance  ministry  and  IFI  from  the  same 
Member State tended to express rather different views (see Graph 3.3.4).  

Graph 3.3.1 Number of rules in the Member 
States, 1990-2018 

Graph 3.3.2 Features of new and reformed rules 
compared to rules in force until 2011 

the 

Note: 
government.  

rules  cover  all  sub-sectors  of  general 

Note:  Each  indicator  ranges  between  0  and  1  and  is 
averaged across all rules in force. 

Source:  European  Commission's 
database. 

fiscal  governance 

Source:  European  Commission's 
database. 

fiscal  governance 

Since  the  adoption  of  Directive  2011/85,  all  Member  States  have  implemented 
reforms of their NFRs, albeit on different scales. Such reforms consist of introducing 
new  rules  (in  most  cases),  amending  existing  rules,  or  a  combination  of  the  two.  The 
stakeholders  indicated  that  41%  of  the  rules  in  force  were  newly  introduced  and  25% 
were  reformed  so  as  to  include  one,  several  or  all  the  features  required  by  Directive 
2011/85.  

The  following  analysis  provides  an  overview  of  developments  by  the  main  NFRs 
provisions in Directive 2011/85. The United Kingdom is outside the analysis because the 
provisions on fiscal rules in Directive 2011/85 do not apply to it. 

39 

00.10.20.30.40.50.60.70.80.91until 2011new/reformed rules 
 
 
 
 
 
 
 
 
 
 
Graph 3.3.3 Drivers of fiscal rule reforms, other 
than the Directive (stakeholders’ views) 

Graph 3.3.4 Disagreement among stakeholders' 
as to the relative role of the Directive for NFRs 

4% 

2% 

14% 

8% 

53% 

18% 

Fiscal Compact
Two-Pack
Six-Pack/ SGP
Commitment to fiscal discipline
Macro-adjustment programme

Source: Stakeholder survey, only MoFs. 

Note:  The  graph  shows  the  absolute  value  of  the 
difference  in  views  between  IFIs  and  MoFs  as  to  the 
impact of  Directive on the design of national NFRs. The 
assessment on the impact of Directive was quantified with 
three scores: 1 – no impact; 2 – one of the factors and 3 – 
the  decisive  factor.  Full  agreement  corresponds  to  no 
difference in the given score given, and full disagreement 
to a maximum difference of 2. The standard deviation is 
marked  by  the  solid  line.  The  sample  comprises  21 
Member  States  for  which  the  responses  of  both  the  IFI 
and MoF were available. 

Source: Stakeholder survey. 

Definition of the target 

National fiscal rules must be endowed with well-specified numerical targets.  In the 
absence of a clearly defined target, monitoring and enforcement of the rules is difficult. 
Therefore  Article  6(1)(a)  of  Directive  2011/85  requires  that  fiscal  rules  contain 
specifications regarding the target definition, which, when read with Article 2(c), has to 
be  ‘expressed  in  terms  of  a  summary  indicator  of  budgetary  performance  such  as  the 
government  budget  deficit,  debt,  or  a  major  component  thereof’.  In  addition,  Directive 
2011/85  refers  consistently  to  numerical  fiscal  rules,  which  implies  that  the  target 
definition must include a number. 

Most NFRs have a well-specified numerical target. For the vast majority of rules, the 
definition of the target, as set out in the relevant legislation, contains specifications of the 
budgetary aggregate and the numerical constraint, as required by Directive 2011/85.  

 

 

In terms of targeted budgetary aggregates, about half of the rules in force in 2018 
target the budget balance, while the other half are roughly equally split between 
expenditure rules and debt rules. Around half of the rules of each type are rules 
for the general government sector (see Table 3.3.1);  

the precise formulation of the numerical constraint varies significantly depending 
on the budgetary aggregate and the Member State’s preferences. Still, two main 
groupings can be identified:  

40 

012FULL AGREEMENTFULL DISAGREEMENT 
 
 
 
 
(i)  one group of rules have explicit numerical targets, most of which are specified in 

simple terms, such as 3% deficit, 60% debt, or expenditure ceilings;  

(ii) the other group clusters the rules that have implicit or indirect numerical targets. 
They  would  include  rules  referring  to  the  medium-term  budgetary  objective 
(MTO)  (as  defined  in  Regulation  No 1466/97),  requiring  a  balanced  budget 
(understood  as  equivalent  to  zero  deficit),  or  cumulating  numerical  conditions, 
most  often  encountered  in  the  case  of  structural  balanced-budget  rules  (e.g.  in 
Lithuania and Romania). 

Table 3.3.1. Numerical fiscal rules in Member States by type and sector coverage (2018) 

Note: The strongest shade of green (red) marks the biggest (smallest) number. Due to their particular nature, revenue rules 
have been excluded from the analysis (in 2018 there were only three such rules in place in the EU).  

Source: European Commission's fiscal governance database. 

Some  target  definitions,  while  precisely  specified,  can  be  very  complex.  The 
complexity  of  some  rules  derives  either  from  detailed  target  formulas  involving  a 
multitude of indicators and time periods or from the desire to define a target that would 
cater for many different contingencies. 

Scope of the rules 

The  scope  of  national  fiscal  rules  should  be  defined  scope  in  terms  of  sector 
coverage.  If  rules  fail  to  cover  a  significant  part  of  the  general  government  sector,  it 
could weaken the effectiveness of the entire fiscal framework by providing opportunities 
for  budgetary  overruns.  Accordingly,  Article  6(1)(a)  requires  fiscal  rules  to  contain 
specifications  as  to  their  scope,  i.e.  the  sub-sectors  of  the  general  government  or 
components  thereof.  At  the  same  time,  Article  12  requires  that  fiscal  rules  consistently 
and comprehensively cover all sub-sectors of the general government. 

All  NFRs  in  force  in  the  Member  States  specify  the  sub-sector(s)  of  general 
government  to  which  they  apply.  The  vast  majority  of  rules  target  either  the  general 
government  as  a  whole  (about  half  of  the  rules)  or  the  local/regional  government  sub-
sectors (a third). The remainder (around 15 %) cover the central or social security sub-
sectors  (see  Table  3.3.1).  Compared  to  2011,  rules  targeting  the  general  level  of 
government  have  become  more  prevalent  than  those  targeting  any  other  level  (see  also 
section 3.5).  

All Member States have fiscal rules that consistently and comprehensively cover all 
the sub-sectors of the general government. All Member States have at least one fiscal 
rule at the general government level (Bulgaria, Austria, Hungary and Latvia have three or 
more); in about one-third, these are the only rules, as there are none at sub-national level.  

41 

General GovernmentCentral governmentSocial securityRegional governmentLocal governmentSub-totalBudget balance rule323651864of which in structural terms25Expenditure rule11542224Debt rule19101728Sub-total62910827116 
 
 
 
Effective and timely monitoring by independent bodies  

For  rules  to  have  an  impact  and  ensure  fiscal  discipline,  compliance  needs  to  be 
assessed in a timely manner on the basis of analysis by independent bodies. Effective 
and timely monitoring is especially warranted where the rules are complex and numerous 
(as  is  now  the  case  in  several  Member  States).  so  their  interplay  might  be  harder  to 
interpret. Moreover, the monitoring bodies have to be able to function independently of 
the  fiscal  authorities,  in  order  to  ensure  effective  and  timely  monitoring.  With  this  in 
mind, Article 6(1)(b) requires the rules to  contain specifications regarding the effective 
and  timely  monitoring  of  compliance,  based  on  independent  analysis  by  independent 
bodies or bodies endowed with functional autonomy vis-à-vis the fiscal authorities. 

NFRs  are  generally  monitored  by  independent  bodies. With  the  backing  of  national 
legal provisions, the monitoring is conducted by independent bodies or bodies endowed 
with functional autonomy vis-à-vis the budgetary authorities, such as fiscal-council type 
of  IFIs  (for  over  two  thirds  of  the  rules)  or  court  of  auditors  with  an  IFI-like  rule-
monitoring mandate. Usually, such bodies have a legal mandate to monitor all rules at the 
general government level, but in a few cases it extends to some or all of the rules at sub-
national level (e.g. Italy, Spain).  

In  practice,  most  IFIs  produce  detailed  and  comprehensive  ex-post  assessment  of 
compliance.  The  vast  majority  of  IFIs  or  court  of  auditors  endowed  with  an  IFI-like 
mandate tend to deliver their ex-post analysis of compliance in a report published usually 
in a timely manner before the preparation of the draft budget for the following year. Once 
an IFI is charged with the task of monitoring fiscal rules, such reports generally become a 
systematic practice. They are published before mid-year – usually in the spring – in all 
Member States except for Bulgaria and Lithuania (autumn). The analysis in them tends to 
be detailed and generally comprehensive in covering all fiscal rules within the mandate 
of  the  body  in  question.  Nevertheless,  in  a  few  instances  (e.g.  Estonia,  Lithuania, 
Romania,  Slovakia,  Ireland  and  Italy),  an  ex-post  analysis  of  compliance  with  certain 
rules  (typically  other  than  the  structural  balanced-budget  rule)  could  not  always  be 
identified  in  the  IFI  reports.  In  Poland,  the  ex-post  monitoring  report  of  the  National 
Audit Office, while very detailed, focuses on accounting and financial accuracy and lacks 
a proper assessment of compliance with the rules.  

Independent  monitoring  of  compliance  appears  to  be  weaker  at  the  sub-national 
level.  A  diverse  set  of  monitoring  arrangements  can  be  observed  across  the  Member 
States  for  sub-national  rules.  Apart  from  cases  where  IFIs  or  court  of  auditors  with  an 
IFI-like mandate are involved, other monitoring arrangements (which concern a fifth of 
the  sub-national  rules)  rely  on  bodies  such  as  regional  audit  chambers,  regional 
government  entities  or  local  finance  committees,  the  finance  ministry  or  some  other 
central  government  body.  While  some  of  those  arrangements  involve  a  strong  and 
independent  monitoring  role  (e.g.  the  regional  audit  chambers  in  Poland),  others  (in 
particular,  where  the  finance  ministry  or  other  central  government  body  is  the  only 
monitoring institution) do not always fulfil the conditions for independent analysis. Such 
rules  would  benefit  from  the  analysis  by  established  independent  institutions  with 
experience in monitoring of fiscal rules.  

42 

 
 
 
Consequences in the event of non-compliance 

While mandating the need to specify consequences in the event of non-compliance, 
Directive  2011/85  leaves  to  the  Member  States  the  decision  on  the  type  of 
consequences.  The  requirement  in  Article  6(1)  regarding  that  feature  of  the  NFRs  is 
general  and  merely  sets  an  obligation  to  specify  in  the  statutory  base  of  the  rule  the 
consequences in the event of non-compliance, thereby leaving to the Member States the 
choice  of  concrete  consequence(s)  for  non-compliance  in  each  case.  This  contrasts,  for 
example,  with  the  detailed  requirements  for  the  correction  mechanism  of  the  structural 
balanced-budget rule enshrined in the Fiscal Compact.45  

Most Member States have specified the consequences of non-compliance in the form 
of corrective measures. For the vast majority of the rules, national legislation specifies 
the consequences of non-compliance and most often take the form of corrective measures 
that  vary  in  the  level  of  detail  regarding  triggering  and  nature,  size  and  timeline  of  the 
correction.  Interestingly,  the  degree  of  specification  regarding  the  corrective  measures 
does not appear to vary so much in relation to the level of government they apply to, as 
rules  targeting  general  government  and  the  local  level  can  have  equally  precise  and 
detailed  corrective  measures.  National  preferences  seem  to  be  a  more  important 
determinant in that respect.  

Fiscal  rules  targeting  general  government,  and  even  some  rules  at  sub-national 
level,  tend  to  have  well-defined  correction  mechanisms  to  deal  with  situations  of 
non-compliance.  This  is  most  often  the  case  with  structural  budget  balance  rules,  but 
also  some  debt  rules  or  expenditure  rules  at  general  government  level  grounded  in  the 
same  legal  base  as  the  structural  budget  balance  rule.  The  correction  mechanisms, 
particularly for the structural balance rules (which is first and foremost a consequence of 
the Fiscal Compact), are characterised by:  

(i) 

an  automatic  trigger  in  the  event  of  a  deviation  observed  by  an  IFI  or  a 
decision by an EU institution; and  

(ii)  measures 

to  correct 

that  must  be 
announced/taken  within  a  pre-defined  time  after  observance  of  the 
deviation.  

it  within  a  certain 

timeline 

In several cases, the rule specifies that the size of the correction should be proportionate 
to  the  size  of  the  deviation  or,  more  strongly,  that  each  budget  must  be  adopted  in 
compliance with the rule. In Austria, Germany and Latvia, the correction mechanism for 
the  structural  budget  balance  rule  includes  a  system  of  control  accounts  recording 
cumulated past deviations. At the same time, some Member States, rather than specifying 
the  full  details  of  their  correction  mechanisms,  resorted  to  introducing  in  the  national 
legislation direct  references to  the SGP  or the Fiscal  Compact.  In some Member States 
(e.g.  in  Estonia,  Germany,  Poland,  Lithuania),  the  rules  at  sub-national  level  may  also 
have  detailed  and  well-specified  corrective  action  (often  allowing  the  possibility  by 
central  authorities  to  override  non-compliant  budgets),  the  activation  of  which  is 
determined by high-frequency monitoring at quarterly or greater frequency. 

45  See  Commission  Communication  on  Common  principles  on  national  fiscal  correction  mechanisms  – 
(COM(2012) 342),  according  to  which  key  features  of  a  well-defined  correction  mechanism  include 
the automaticity of its triggering in the event of deviation and the pre-determined size and timeline of 
the corrective measures. 

43 

 
 
                                                           
For a minority of rules, the consequences of non-compliance other than corrective 
measures are listed in their statutory base. For example, some of those consequences 
may  involve  certain  financial  restrictions  (e.g.  prohibition  to  issue  guarantees,  as  is  the 
case  for  a  local  government  rule  in  Romania),  political  or  criminal  responsibility 
(expenditure  and  debt  rules  in  Poland)  or  merely  reputational  costs  (two  of  the  general 
government  rules  in  Hungary  and  in  Lithuania).  ‘Reputational  costs’  are  arguably  the 
weakest type of consequences of non-compliance and more tangible consequences could 
increase the effectiveness of the rules in question.  

Escape clauses 

The Directive accepts some flexibility around the rule in the form of escape clauses, 
provided  they  are  limited  in  number  and  well-defined.  The  academic  literature  has 
long argued that there should be some flexibility to shocks and events outside the control 
of the government for rules to be credible, viable, workable and long-lasting. At the same 
time,  safeguards  should  be  in  place  to  limit  the  possibility  of  an  abuse.  As  a  result, 
Directive  2011/85  allows  for  NFRs  to  be  given  a  degree  of  flexibility  in  the  form  of 
escape  clauses,  while  not  requiring  them  to  be  present.  However,  it  does  set  some 
requirements  as  to  the  specification  of  any  escape  clauses  that  do  exist.  Specifically, 
Article 6(2) provides that ‘If numerical fiscal rules contain escape clauses, such clauses 
shall  set  out  a  limited  number  of  specific  circumstances  consistent  with  the  Member 
States' obligations deriving from the TFEU in the area of budgetary policy, and stringent 
procedures in which temporary non-compliance with the rule is permitted.’ 

Most  escape  clauses  consider  the  exceptional  circumstances  included  in  the  EU 
fiscal  framework.  About  half  of  the  NFRs  in  the  Member  States  have  escape  clauses, 
most of which are newly  introduced rules at  the level  of  general  government. With the 
exception of Sweden, all Member States have at least one rule at the general government 
level (and in many cases all rules targeting that level) that has an escape clause. By and 
large,  such  clauses  are  limited  in  number  and  are  formulated  in  terms  of  exceptional 
situations such as severe economic downturn (occasionally explicitly referring to the euro 
area  or  the  EU)  or  catastrophic  events  (including  threats  to  national  security)  with 
significant financial impact. The overwhelming majority of escape clauses for the general 
government rules include a direct reference to the ‘exceptional circumstances’ as defined 
in  the  SGP  or  the  Fiscal  Compact  or  refer  to  a  decision  by  the  Council.  Other  than 
exceptional events, circumstances for temporary non-compliance with the rule related to 
structural  reforms  having  a  significantly  positive  impact  on  the  sustainability  of  public 
finances  are  sometimes  specified  in  the  legal  basis  (e.g.  the  structural  balanced-budget 
rule in Italy).  

In practice, the use of escape clauses has been frequent and in accordance with the 
legal  basis,  although  it  has  significantly  decreased  over  time.  The  information 
reported by the Member States in the Commission's fiscal governance database suggests 
that, on average, escape clauses were triggered for roughly 25% of the rules in 2015 and 
2016, but for only one rule in 2017 and 2018. The experts surveyed tend to agree on the 
appropriateness of the triggering of escape clauses. 

44 

 
 
 
 
Reflection of the NFRs in the annual budget legislation  

In  almost  all  Member  States,  the  budget  must  be  drafted  in  compliance  with  the 
fiscal rules in force, although at times the duty to do so is not explicitly specified. To 
reinforce  the  constraining  character  of  fiscal  rules,  Directive  2011/85  requires  that  the 
annual  budget  legislation  must  reflect  the  fiscal  rules  in  force  (Article  10).  In  three-
quarters of the Member States, there is either an explicit legal provision stating that the 
annual budget legislation must be drafted in line with all fiscal rules in force or a general 
legal provision that the annual budget is to be based on all laws in force, which implicitly 
includes the legal basis of the fiscal rules. In Croatia, the Netherlands and Slovakia there 
is  no  legal  requirement  in  that  regard;  however,  the  annual  budget  documentation 
discusses  compliance  with  the  NFRs,  either  in  a  general  way  or  through  an  explicit 
statement confirming compliance of the budget with the fiscal rules. 

Overall, Member States’ practitioners found the transposition and implementation 
of  Directive  2011/85  to  be  quite  challenging  and  entailing  many  changes.  The 
stakeholder  consultation  reveals  that  the  Directive’s  provisions  on  fiscal  rules  have 
required  significant  changes  (in  terms  of  national  legislation,  procedures,  practices, 
documents,  etc.)  (see  Graphs  A4  and  A6  in  the  Annex).  Moreover,  they  report  that 
implementing  those  changes  to  be  rather  difficult,  even  if  a  little  less  so  in  relation  to 
implementation  than  transposition  (see  Graphs  A5  and  A7  in  the  Annex).  While  the 
stakeholders mentioned a variety of idiosyncratic challenges to implementation, some of 
the  more  recurring  ones  refer  e.g.  to  difficulties  in  calculating  the  output  gap  in  small 
open  economies,  for  examples,  or  in  the  distribution  of  targets  between  general 
government sub-sectors or entities, sometimes due to different accounting standards but 
also to the institutional architecture of the State.  

3.3.3.  Effectiveness of NFRs in meeting the objectives of Directive 2011/85 

According to Directive 2011/85, national NFRs must primarily promote compliance 
with  the  EU  rules  and  the  adoption  of  medium-term  planning.  To  gauge  the 
effectiveness of those provisions on national fiscal rules, this part examines the extent to 
which  they  rules  have  contributed  so  far  to  attaining  the  key  objectives  specified  in 
Directive 2011/85. This is in response to the requirement contained in Article 16(2)(b) to 
assess  the  effectiveness  of  numerical  fiscal  rules  in  the  Member  States.  Alongside  the 
goal of budgetary discipline (recital 16), national fiscal rules should enhance compliance 
with the Treaty reference values on deficit and debt and should promote the adoption of a 
multiannual fiscal planning horizon (Article 5). In addition, well-specified NFRs should 
contribute to reducing the pro-cyclical bias of fiscal policy (recital 18). Admittedly, the 
role  of  Directive  2011/85  in  achieving  those  objectives  cannot  be  easily  disentangled 
from  the  one  of  concurrent  reforms  that  also  had  a  significant  influence  on  the 
development of national rules in the EU. Accordingly, the evidence reported in this part 
of the analysis seeks to illustrate the effectiveness of national fiscal rules in general. 

Design of and compliance with national fiscal rules 

Specific  design  features  have  been  found  by  the  literature  to  enhance  the 
effectiveness of fiscal rules. Among them are features that help guide fiscal policy to its 

45 

 
 
 
 
envisaged objectives. While those features are difficult to pinpoint, as they are ultimately 
country-  and  context-specific,  the  literature  (Kopits  and  Symansky  1998)  suggests  that 
they should encompass: 

  simplicity and transparency; 
  a target that is clearly specified and directly linked to the main objective; 
  an independent monitoring body; and  
  some flexibility to allow policy-makers to face shocks.  

Rules with strong design features of this kind just described have been found to have a 
positive impact on fiscal performance (Caselli et al. 2018; Debrun et al. 2008).  

Through  Directive  2011/85,  Member  States  have  introduced  new  design  features 
aimed  at  strengthening  national  fiscal  rules.    Article  6  provides  some  general 
guidelines on how to strengthen rule design by specifying the (numerical) target and the 
scope of the rule, introducing monitoring of compliance based on independent analysis, 
and  specifying  the  consequences  in  case  of  non-compliance.  If  escape  clauses  are  in 
place,  Directive  2011/85  calls  for  some  specific  features  to  clarify  when  and  how  they 
may  be  used.  Overall,  an  overwhelming  majority  of  Member  States  have  successfully 
included  those  features  in  their  frameworks  of  NFRs.  According  to  stakeholders,  those 
features  have  helped  to  improve  the  effectiveness  of  domestic  fiscal  rules.  About  80% 
assessed the provisions on the design of NFRs as broadly relevant and sufficient (Graph 
3.3.5). Finance ministries and IFIs display a strong consensus in most cases, with some 
divergence regarding the relevance of the target and sufficiency of the provisions, where 
the IFIs are slightly less positive.  

Nonetheless,  according  to  the  Member  States’  practitioners,  some  provisions  of 
Directive  2011/85  could  be  made  more  binding.  Some  stakeholders  indicate  that  the 
NFR-related provisions in the Fiscal Compact were more effective and more binding. For 
example,  the  precise  target  definition  in  the  Fiscal  Compact  is  deemed  more  relevant, 
while  the  corresponding  consequences  in  the  event  of  non-compliance  are  perceived  to 
be more binding, as they envisage a stricter correction. To further improve the design of 
rules, stakeholders suggested inter alia:  

(i) 

(ii) 

improvements  in  the  escape  clause  definition,  including  a  more  narrow 
definition with an exhaustive list of events in order to avoid misuses;  
in 
stricter  corrections 
administrative fines; and  

the  event  of  non-compliance, 

including 

(iii)  more details  on the  IFIs' role regarding the  assessment of fiscal  rules, in 

particular for a comprehensive ex-ante assessment. 

The widespread use of ‘new generation’ NFRs in the EU, to which Directive 2011/85  
contributed,  has  increased  the  need  for  consistency  among  rules  while  creating 
complexity in their use. The rise in the number of rules and the addition of new design 
features have significantly increased the complexity of the fiscal  rule framework in  the 
EU (Deroose et al. 2018). Such complexity poses its own challenges. First, the number of 
NFRs surged in recent years (in 2018 there were nearly four rules per Member State, on 
average, compared to just two in 2010), implying that often now there are multiple rules 
constraining several budgetary aggregates of the same government level. This increase in 
the number of rules requires a high degree of consistency and coordination among fiscal 
rules,  within  and  across  sub-sectors  of  general  government,  to  avoid  instances  of 
conflicting signals/constraints. Secondly, in many instances, the formulation of the target 
in structural terms, while adding value by increasing the rule’s adaptability to economic 
46 

 
 
conditions,  increases  complexity  from  an  operational  point  of  view,  in  terms  of 
translating it into concrete budgetary targets.  

      Graph 3.3.5: Sufficiency and relevance of NFR provisions (stakeholders’ views) 

Sufficiency 

Relevance 

100%

80%

60%

40%

20%

0%

Article 6

FMs

IFIs

100%

80%

60%

40%

20%

0%

Article 6.1(a) -
target

Article 6.1(a) -
scope

Article 6.1(b)  Article 6.1(c) Article 6.2

FMs

IFIs

Note: the figure shows how many responded gave a rating of 4 or 5 to the issues above ( 4- 5 meaning highly 
relevant/relevant, or highly sufficiency/ sufficient). NB: that 6(1)(b) and 6(1)(c) refer, respectively, to the monitoring of 
compliance and consequences in event of non-compliance, 6(2) refers to the specification of escape clauses. 

Source: Stakeholders survey, answers from MoFs and IFIs. 

Design improvements are necessary for the effectiveness of rules, but not sufficient. 
A  fiscal  rule  endowed  with  the  design  features  mentioned  above  is  not  effective  if  not 
respected. On compliance, it is reported that more than 80% of the rules for which that 
information was reported were complied with in 2017 and 2018, and about 70% of rules 
were  complied  with  both  ex-ante  and  ex-post.46  This  information  is  consistent  with  the 
findings  of  the  literature  (Reuter  2015)  and  the  stakeholders’  views.  More  specifically, 
stakeholders  report  high  ex  ante  and  ex  post  compliance  in  most  cases,  with  ex-ante 
compliance being somewhat stronger than the ex-post compliance. Compliance seems to 
be more difficult with structural balance rules, in part due to difficulties with calculating 
the  output  gap,  but  also  with  expenditure  rules.  In  most  cases,  stakeholders  see  non-
compliance  as  the  outcome  of  low  political  commitment  and  in  fewer  cases  as  the 
outcome of difficult  economic times not  covered by  escape clause provisions.  In  a  few 
instances, compliance with the rules was reported as not monitored in a timely manner, 
which prevented early detection and possible correction of the deviation from target.  

Effectiveness in promoting budgetary discipline 

In  line  with  the  literature,  Commission  analyses  and  the  views  of  Member  States’ 
practitioners concur on the NFRs’ effectiveness in improving budgetary discipline. 
Recital 16 to Directive 2011/85 explains that NFRs should enhance domestic ownership 
of those EU rules promoting budgetary discipline. Given evident challenges in detecting 

46  According  to  information  collected  by  the  Commission  (based  on  Member  States’  self-reporting)  in 

connection with the fiscal governance database. 

47 

 
 
 
 
 
                                                           
the degree of domestic ownership, this discussion hinges on the extent to which national 
fiscal  rules  have  improved  budgetary  discipline  more  generally.  The  effectiveness  of 
fiscal  rules  on  budgetary  outcomes  has  been  widely  examined  in  the  literature 
(Heinemann  et  al.  2018;  IMF  2009).  Overall,  studies  find  that  well-designed  rules 
improve fiscal performance (Badinger and Reuter 2017; Debrun  et al. 2008) and might 
also reduce risk premia (Iara and Wolff, 2014). Regarding specifically NFRs in the EU in 
particular, a Commission analysis finds that budgetary discipline, expressed in relation to 
the  cyclically-adjusted  primary  balance,  improves  with  stronger  and  better-designed 
fiscal  rules (European Commission  2018). Looking at  the entire population of NFRs in 
the EU for the period 1990-2016 and relying on an estimation technique consistent with 
the relevant literature (Debrun et al. 2008), that study shows that NFRs have a positive 
and statistically significant impact on cyclically adjusted budget balances. Interestingly, 
the  study  also  points  to  some  preliminary  evidence  that  as  the  number  of  rules  per 
country  increases,  the  marginal  effect  on  fiscal  balances  diminishes.  The  stakeholders 
overwhelmingly  agree  that  NFRs  have  an  impact  on  budgetary  outcomes  (see  Graph 
3.3.6).  About  80%  of  the  stakeholders  (predominantly  from  the  ministries  of  finance) 
that  NFRs  have  enhanced  budget  discipline.  Stakeholders  ascribe  weak 
agree 
effectiveness in terms of budgetary discipline to the design of rules, and only to a much 
lesser extent to lack of compliance and weak enforcement procedures.  

Graph 3.3.5 Promotion of budgetary discipline 
(stakeholders’ views) 

Source: Stakeholders survey 

Effectiveness in promoting compliance with Treaty reference values  

NFRs are perceived by stakeholders as promoting compliance with Treaty reference 
values. Under Article 5 of Directive 2011/85, NFRs must promote compliance with the 
EU reference values on deficit and debt set in accordance with the TFEU, i.e. 3% for the 
deficit-to-GDP  ratio  and  60%  for  the  government  debt-to-GDP  ratio.  There  are 
significant  methodological  challenges  in  establishing  whether  national  fiscal  rules 
contribute  to  compliance  with  EU  budgetary  obligations.  The  evidence  is  quite 
compelling  as  regards  the  alignment  of  the  design  of  national  rules  with  the  EU  fiscal 
rules, which could be interpreted as an attempt to facilitate compliance with the latter by 
enshrining  their  features  in  the  national  legislation  while  strengthening  the  national 
ownership of EU rules. As previously shown, the introduction of Directive 2011/85 can 
indeed be associated with a surge in NFRs the design of which largely mirrors that of EU 

48 

0%10%20%30%40%50%60%Average orbelow HighVery highMoFsIFIs 
 
 
 
 
fiscal  rules.  Out  of  62  general  government  rules  in  place  in  2018,  about  three-quarters 
replicate  or  contain  important  features  of  the  corresponding  EU  rules.  About  51%  of 
them are budget balance rules, 30% are debt rules and only about 18% are expenditure 
rules.  In  most  cases,  debt  rules  explicitly  refer  to  the  60%  debt  reference  value  in  the 
TFEU, while reference to the 3% deficit value in the TFEU is not as prevalent, with most 
budget  balance  rules  targeting  structural  balance  indicators  and  suggesting  once  more 
that the Fiscal Compact had a strong impact on the design of those rules. As to the extent 
to  which  NFRs  effectively  promote  compliance  with  TFEU  reference  values  on  deficit 
and debt, only around 15% of stakeholders point to NFRs having a weak or none at all 
(Graph  3.3.7).  However,  finance  ministries  and  IFIs  differ  markedly,  with  the  former 
giving  a  more  positive  assessment.  When  promotion  of  the  EU  reference  values  was 
assessed  as  low,  stakeholders  cited  issues  with  sub-national  governments  and  lack  of 
consistency across rules. 

Effectiveness in promoting multiannual fiscal planning  

Although most Member States’ practitioners see national fiscal rules as promoting 
multiannual planning, the evidence is not clear. As laid down in Article 5 of Directive 
2011/85,  the introduction of NFRs should promote the adoption of a multiannual  fiscal 
planning horizon, including adherence to the Member State’s MTO. In setting targets and 
objectives for some specific fiscal variables, fiscal rules do serve indeed as an anchor for 
policymaking. Coupled with sound macroeconomic forecasts, the presence of fiscal rules 
should  unequivocally  facilitate  budgetary  planning  in  the  medium  term  by  offering  a 
margin of manoeuvre within which policy options can be selected. Most stakeholders see 
NFRs  as  promoting  multiannual  fiscal  planning  in  their  Member  States  (Graph  3.3.8). 
The degree of consensus over on that issue differs between ministries of finance and IFIs, 
with  about  90%  of  the  former  affirming  a  high  or  very  high  degree  of  promotion  of 
multiannual  fiscal  plans,  against  only  60%  of  the  latter.  Regarding  specifically  the 
promotion of adherence to the MTO, evidence from the Commission's fiscal governance 
database illustrates that most NFRs at the general government level are structural budget 
balance  rules  aiming  to  ensure  that  a  Member  State  is  at  its  MTO  or  follows  an 
adjustment  path  towards  it.  Again,  it  seems  likely  that  the  design  of  those  rules  was 
mostly influenced by the Fiscal Compact. 

Graph 3.3.6 Promotion of Treaty reference values 
(stakeholders’ views) 

Graph 3.3.7 Promotion of multiannual fiscal 
plans (stakeholders’ views) 

Source: Stakeholders survey 

Source: Stakeholders survey 

49 

0%10%20%30%40%50%60%70%Average orbelow HighVery highMoFsIFIs0%10%20%30%40%50%60%Average orbelow HighVery highMoFsIFIs 
 
 
 
 
Effectiveness in reducing the pro-cyclicality of fiscal policy 

impact 

discretionary 

Source: Stakeholders survey. 

Graph 3.3.8 Promotion of counter-cyclical fiscal 
policies (stakeholders’ view) 

NFRs 
in  reducing  pro-
cyclicality is not assessed as high by 
the  stakeholders,  at 
times  on 
rule  design.  By 
account 
of 
constraining 
policy 
options, fiscal rules could limit fiscal 
authorities’ ability to react to business 
cycle 
fluctuations.  Consequently, 
fiscal  rules  have  been  found  to  be 
associated  with  a  pro-cyclical  fiscal 
stance  (Manasse  2005,  Fatàs  and 
Mihov 2006). To limit the procyclical 
bias,  novel  features  have  been  added 
to  the  design  of  more  recent  rules 
(also  known  as  ‘second  generation 
fiscal  rules’),  to  make  rules  better 
equipped to face shocks and volatility 
(Schaechter  et  al.  2012).  Among 
those features are balances expressed 
in structural terms or adjusted by the cycle, the introduction of escape clauses and some 
event-specific  flexibility  clauses.  The  introduction  of  these  features  has  proven  to 
enhance  the  countercyclical  properties  of  fiscal  rules  (see  Ayuso-i-Casals  et  al.  2007, 
Bova  et  al.  2014,  and  Cordes  et  al.  2015).  To  allow  for  more  flexibility,  many  new  or 
reformed national NFRs encapsulate flexible design features. Out of 104 NFRs included 
in the Commission’s fiscal governance database in 2018, 25 target the structural balance 
(as  opposed  to  the  headline  balance  which  is  unrelated  to  the  cycle);  41  have  escape 
clauses; 13 include some budgetary safety margins; and 24 exclude some specific items 
from  the  targeted  indicator.47  Only  42  NFRs  have/do  none  of  the  above.  Despite  the 
introduction of such design features (escape clauses, cyclically-adjusted targets) in many 
NFRs,  less  than  half  of  the  stakeholders  see  rules  as  effective  in  promoting  counter-
cyclicality (Graph 3.3.9). In particular, IFIs consider the impact to be rather low. In most 
cases,  they  consider  it  a  result  of  rule  design  and,  to  a  lesser  extent,  of  the  lack  of 
compliance.  As  regards  rule  design,  the  stakeholders’  positive  assessment  of  the 
relevance  of  the  design  features  introduced  by  Directive  2011/85  may  point  to  the 
perception  that,  while  those  features  helped  to  strengthen  fiscal  rules  for  budgetary 
discipline,  they  could  indeed  be  improved  to  allow  for  more  counter-cyclicality.  Other 
reported  reasons  for  the  ineffectiveness  of  fiscal  rules  in  promoting  counter-cyclicality 
are  linked  to  insufficient  political  ownership  and  legal  enforcement,  challenges  in 
accurately  identifying  the  current  position  in  the  economic  cycle,  poor  estimates  of 
potential output and a wide use of escape clauses and one-off measures. 

47 In the Fiscal Governance Database, the variable for flexibility included in the Fiscal Rule Strength Index 
compounds  the  following  four  dimensions:  balance  expressed  in  structural  terms,  escape  clauses, 
budget safety margins and exclusions of some specific items from the target. 

50 

0%10%20%30%40%50%60%70%80%Average orbelow HighVery highMoFsIFIs 
 
   
 
                                                           
 
 
3.3.4.  Conclusions  

Directive  2011/85  was  aimed  at  promoting  the  adoption  or  upgrading  of  NFRs  to 
help  to  strengthen  Member  States’  fiscal  frameworks  as  a  way  of  promoting 
compliance  with  the  EU  fiscal  rules.  To  support  that  overarching  objective,  its 
provisions  essentially  called  for  NFRs  to  have  certain  features,  so  as  to  improve  their 
design and effectiveness of those rules. Its adoption was followed by a surge in national 
NFRs across the EU. This cannot be attributed exclusively to Directive 2011/85, as other 
factors influenced the national fiscal governance landscape at almost the same time, such 
as  other  relevant  pieces  of  EU/intergovernmental  legislation  or,  where  applicable,  the 
macroeconomic adjustments programmes. 

While Directive 2011/85 has not, and could not have, been the single most decisive 
factor for national NFRs, it has wielded considerable influence on their design and 
effectiveness.  Overall,  the  Member  States  now  have  sets  of  fiscal  rules  that  are  better 
defined  in  terms  of  target  and  scope,  that  generally  have  some  consequences  for  non-
compliance  attached  to  them,  and  which  are  usually  monitored  on  the  basis  of 
independent analysis. Where they include escape clauses, these are limited in number and 
generally well-defined.  

While  the  overall  quality  of  the  rules  has  improved,  the  complexity  of  the 
framework  of  fiscal  rules  has  also  increased.  The  design  of  the  NFRs  is  strongly 
consistent with the EU rules and conducive to budgetary discipline. Nevertheless, there is 
room for further improvement, as not all required features are present in all the Member 
State’s NFRs. Particular attention should be given to: 

 

laying  down  clear  and  effective  consequences  in  the  event  of  non-compliance 
(ideally in the form of a correction mechanism); 

  having  only  limited  and  clearly  defined  escape  clauses  (where  such  clauses  are 

warranted); and 

  ensuring  that  rule  monitoring  is  based  on  analysis  provided  by  independent 

bodies.  

The increase in the number of rules and refinements in their design call for a high degree 
of consistency  and coordination  among the now numerous fiscal  rules, both  within and 
across sub-sectors of the general government, in order to avoid conflicting messages. In 
addition, 
require  a  good  degree  of 
operationalisation  in  terms  of  concrete  budgetary  objectives.  Those  views  have  been 
generally echoed by the stakeholders. 

in  structural 

formulated 

targets 

terms 

As  an  impressive  number  of  NFRs  have  been  adopted  or  reformed  relatively 
recently, it would be too soon to judge their effectiveness definitively. Nevertheless, 
preliminary evidence indicates that those design improvements have had positive effects. 
The consensus in the literature, that fiscal rules enhance budgetary discipline, is not only 
widely  confirmed  by  the  stakeholders’  views  on  their  domestic  NFRs,  but  also  by 
analytical work by the Commission that finds a positive and significant impact of NFRs 
on budget balances. In addition, stakeholders perceive NFRs as playing an important role 
in  promoting  compliance  with  the  EU  budgetary  obligations  in  the  form  of  the  TFEU 
reference  values  on  deficit  and  debt  and,  and  to  a  lesser  extent,  the  adoption  of  a 
multiannual  planning  horizon.  Furthermore,  the  large  number  of  recently  introduced 
NFRs introduced recently to  constrain  the budget  balance in  structural  terms  (primarily 
as a consequence of the relevant Member States’ Fiscal Compact obligations) are geared 

51 

 
 
towards adherence to the Member States’ MTOs. Evidence on reducing or avoiding pro-
cyclical fiscal policies is rather mixed; while the rules by and large incorporate elements 
that  should  enhance  counter-cyclicality  (e.g.  escape  clauses,  structural  or  cyclically-
adjusted  targets),  stakeholders  see  room  for  improvement  in  the  design  of  rules  to 
provide for more effective counter-cyclical action. 

The  Directive  2011/85  has  undeniably  played  an  important  part  in  the  recent 
development of NFRs across  the EU, which in turn is  seen to promote compliance 
with the EU fiscal framework. The design features laid down in Directive 2011/85  are 
also  considered  highly  relevant  by  stakeholders,  while  some  of  them  call  for  stricter 
provisions  that could  make the  rules more binding  and ultimately improve compliance. 
Further reflection on how to improve the effectiveness of NFRs may be warranted, with 
due consideration to inter-linkages with the EU fiscal rules.  

3.4.  Medium-term budgetary frameworks 

3.4.1.  General considerations 

The benefits of robust medium-term fiscal planning are widely acknowledged in the 
economic  literature.  Basing  budget  planning  on  a  multiannual  perspective  enables  the 
authorities to: 

  assess and present the impact of their proposed policies over several years; 

  signal what policy areas they are prioritising; and  

  ultimately enhance budgetary discipline though better expenditure control (IMF, 

2013).  

Well-designed  MTBFs  increase  transparency  and  provide  more  visibility  on  the 
trajectory  of  public  finances  for  economic  agents,  as  the  medium-term  orientation  of 
fiscal  policy  leads  to  clearer  and  more  predictable  fiscal  outcomes  (European 
Commission, 2007).48 Moreover, recent empirical analysis has found that MTBFs have a 
large  and  positive  impact  on  fiscal  outcomes,  thus  strengthening  fiscal  discipline 
(European Commission, 2019a). 

The need to increase national ownership of the EU fiscal framework and effectively 
promote  compliance  with  the  Member  States’  obligations  deriving  from  the  EU 
legislation was a key argument in favour of a stronger medium-term orientation of 
national fiscal frameworks, which materialised in the introduction of the concept of 
MTBF  in  Directive  2011/85.  Article  2  defines  MTBFs  as  a  ‘specific  set  of  national 
budgetary procedures that extend the horizon for fiscal policy-making beyond the annual 
budgetary  calendar,  including  the  setting  of  policy  priorities  and  of  medium-term 
budgetary  objectives’.  As  set  out  in  recital  19,  MTBFs  are  strictly  instrumental  in 
ensuring that the Member States’ budgetary frameworks are consistent with EU law. In 

48   International  financial  institutions  and  the  literature  use  various  terms  to  refer  to  the  instruments  of 
multiannual  fiscal  planning.  For  example,  the  World  Bank  uses  the  notion  of  ‘medium-term 
expenditure frameworks’, while the network of EU IFIs and the IMF use the term ‘medium-term fiscal 
frameworks’ to refer to multi-year macro-fiscal objectives and targets. 

52 

 
 
 
 
                                                           
particular, if national fiscal planning is consistent with the preventive and corrective arms 
of the SGP, it indicates that the national budgetary framework is geared to achieving, in 
particular, the Member State’s MTO. MTBFs can incorporate the multiannual budgetary 
perspective  of  the  EU  budgetary  surveillance  framework  in  the  national  budgetary 
process, with annual budget legislation being prepared on the basis of multiannual fiscal 
planning stemming from the MTBF (recital 20). 

Directive  2011/85  required  Member  States  to  establish  credible  and  effective 
national MTBFs, which should include a number of basic features. The objective of 
having MTBFs was to expand fiscal planning beyond the annual budget process along a 
horizon of at least three years and consequently foster more effective and realistic fiscal 
policy-making over the medium term. At the same time, for the MTBF to be effective in 
promoting the budgetary discipline and sustainability of public finances, it should have a 
comprehensive coverage of general government finances. Article 9(2) lists the elements 
that it should include, namely:  

(i) 

(ii) 

(iii) 

comprehensive  and 
consistent with the NFRs (Article 9(2)(a) and recital 17); 

transparent  multiannual  budgetary  objectives 

projections  of  key  fiscal  aggregates  for  the  budget  year  and  beyond, 
assuming no policy changes (Article 9(2((b) and recital 21); 

a  description  of  medium-term  policies  decided  in  the  annual  budgetary 
process  and  of  the  budgetary  implications  beyond  the  year  of  their 
adoption (Article 9(2c) and recital 20); 

(iv) 

an assessment of the direct impact of the envisaged policies on the long-
term sustainability of public finances (Article 9(2)(d)). 

Directive  2011/85  sought  to  establish  a  direct  link  between  the  annual  budget  and 
the  multiannual  budgetary  plans.  Article  10  anchors  the  production  of  the  annual 
budgets  in  a  medium-term  perspective  by  requiring  that  the  revenue  and  expenditure 
projections derived from the MTBF are used as the starting point in the preparation of the 
annual budget. It also provides that there should be an explanation for departures of the 
annual budget from the provisions of the MTBF. 

Under its Article 11, Directive 2011/85 should not prevent a new government from 
updating  its  MTBF  to  reflect  its  new  policy  priorities.  However,  that  government  is 
bound to indicate the differences from the previous MTBF. 

The  recognition  given  in  the  EU  economic  governance  architecture  to  the 
importance of pursuing medium-term fiscal planning in the Member States neither 
started nor ended with Directive. The Directive was not the first EU legislation linked 
to  Member  States’  multiannual  fiscal  planning.  Regulation  No  1466/97  (which 
established the so-called ‘preventive arm’ of the SGP) first introduced the concept of the 
country-specific  MTO  seeking  to  ensure  the  sustainability  of  public  finances  or  rapid 
progress  towards  it.  It  also  required  Member  States  to  submit  annually  to  the 
Commission their medium-term budgetary plans, in the form of stability or convergence 
programmes (SCPs). The SCPs should provide information on: 

 

 

the MTO and the adjustment path towards it; 

the expected path of the general government debt ratio; 

53 

 
 
 

the  planned  path  for  general  government  expenditure,  including  corresponding 
allocation for gross capital formation; 

 

the planned growth path of government revenue assuming no policy changes; and  

  a quantification of the planned discretionary measures.  

However,  in  many  instances  the  plans  presented  in  the  SCPs  were  not  executed  as 
envisaged,49  suggesting  that  the  link  between  the  annual  budgets  and  the  programmes 
was  relatively  weak.  Arguably,  the  SCPs  were  perceived  domestically  more  as  an 
EU-imposed instrument for budgetary reporting and surveillance than as a genuine tool 
of national fiscal policy-making. The subsequent adoption of Directive 2011/85 sought to 
overcome  this  ‘ownership  deficit’  by  setting  certain  requirements  for  the  national 
MTBFs. 

Since  the  adoption  of  Directive  2011/85,  follow-up  EU  and  intergovernmental 
initiatives  have  sought  to  complement  and  reinforce  the  medium-term  perspective 
in national budgetary planning, with a view to facilitating compliance with the EU 
fiscal framework.  The  2012  TSCG  brought  about  a  balanced-budget  rule  in  cyclically 
adjusted terms, aiming to translate a slightly stricter version of the MTO defined under 
the preventive arm of the SGP into the budgetary frameworks of Member States bound 
by the Fiscal Compact.50 Subsequently, Regulation No 473/2013 gave further impetus to 
national  medium-term  fiscal  planning  by  requiring  euro-area  Member  States  to  publish 
NMTFPs  at  the  same  time  as  (or  as  part  of)  their  stability  programmes  and  to  prepare 
them on the basis of independently produced or endorsed macroeconomic forecasts. 

Disentangling  the  specific  impact  of  Directive  2011/85  on  the  design  and 
effectiveness  of  national  MTBFs  from  the  influence  of  other  EU  legislation  or 
intergovernmental  provisions  is  not  straightforward  given  the  plethora  of  legal 
requirements  and  planning  documents.  For  example,  Member  States  may  use  either 
specific  national  documents  laying  out  their  medium-term  fiscal  strategy  or  SCPs  as 
medium-term fiscal plans. The content of such documents is not necessarily identical — 
while  the  Directive  2011/85  identifies  certain  elements  that  must  be  included  in  the 
national MTBFs, the structural components of the SCPs and the corresponding guidance 
are  detailed  in  the  SGP  Code  of  Conduct.51  Therefore,  heterogeneous  and  coexisting 
documents serving a similar purpose, but governed by different requirements are bound 
to provide similar or overlapping input to medium-term fiscal planning, possibly even at 
different points in time. This can raise issues of uncertainty over the medium-term fiscal 

49   European  Commission  (2014),  ‘Planning  versus  implementation:  why  are  medium-term  budgetary 

targets not always respected?’; chapter in Public finances in EMU. 

50   Apart from defining setting a stricter lower limit of a structural deficit limit of 0.5% of the GDP (or 1% 
for countries with a debt-to-GDP ratio significantly below 60% and with low sustainability risks), the 
TSCG also required contracting parties to ensure rapid convergence towards their MTO along a time 
frame to be proposed by the Commission. 

51   Specifications on SGP implementation and Guidelines on the format and content of SCPs; 

http://ec.europa.eu/economy_finance/economic_governance/sgp/pdf/coc/code_of_conduct_en.pdf 
(http://ec.europa.eu/economy_finance/economic_governance/sgp/pdf/coc/code_of_conduct_en.pdf) 

54 

 
 
                                                           
 
plans  and  consistency  with  annual  budgets,  potentially  requiring  reconciliation  steps, 
depending on the timing of the documents and on the underlying accounting standards.52 

Slight,  but  potentially  confusing,  differences  in  terminology  emerged  with  the 
different MTBF-related requirements. The co-existence of Directive 2011/85, the six-
the  two-pack’s  Regulation  473/2013  entails  simultaneous 
pack  regulations  and 
requirements applying to medium-term budgetary plans (in the form of SCPs, as per the 
SGP)  and  to  NMTFPs  (as  per  the  Directive  and  Regulation  473/2013).  Moreover,  the 
meaning  of  MTBF  lends  itself  to  more  than  one  interpretation  in  the  text  of  Directive 
2011/85. On the one hand, there is the prevailing procedural meaning established in the 
MTBF definition itself (Article 2(e) refers to the ‘(…) specific set of national budgetary 
procedures (…)’). On the other hand, there is also a quantitative meaning, according to 
which the MTBF is the set of budgetary figures forming the medium-term path.53 While 
the  various  nuances  of  MTBF  requirements  may  be  justified  individually,  a  certain 
conceptual  clarification  and  harmonisation  might  be  helpful  in  terms  of  more  credible 
and effective multiannual fiscal planning. 

3.4.2.  Main developments 

Member  States’  arrangements  for  medium-term  fiscal  planning  have  developed 
significantly in recent years. In some, various forms of MTBF had actually existed even 
well  before  the  SGP.  Thanks  in  particular  to  requirements  in  key  EU-level  legislation 
such as the preventive arm of the SGP (together with the related Code of Conduct) and, 
more  recently,  Directive  2011/85  and  Regulation  473/2013,  there  has  been  significant 
progress on multiannual fiscal planning across the EU. Consequently, today all Member 
States have a more or less developed MTBF in place. 

The  expansion  and  improvement  of  MTBFs  in  the  EU  is  reflected  in  the  fiscal 
governance database. The related MTBF index captures the developments that led to a 
strengthening of Member States’ MTBFs. The index is built around five dimensions:  

(i) 

(ii) 

(iii) 

(iv) 

(v) 

the coverage of the targets/ceilings in the NMTFPs;  

connectedness  between  targets/ceilings  in  the  NMTFPs  and  the  annual 
targets; 

the involvement of the national parliament or use of a coalition agreement 
in the preparation of the medium-term budgetary plans; 

the involvement of IFIs in the preparation of the NMTFPs; and  

the level of detail in the NMTFPs. 

52   SCPs are established in ESA2010 terms, whereas other national medium-term planning documents are 

typically in cash terms. 

53   For  example,  recital  20  refers  to  MTBFs  in  their  procedural  meaning  (‘planning  of  annual  budget 
legislation should be based on multiannual fiscal planning stemming from the medium-term budgetary 
framework’). On the other hand, recital 21 refers to MTBFs in a quantitative sense (‘That medium-term 
fiscal framework should contain, inter alia, projections of each major expenditure and revenue item for 
the budget year and beyond’). Finally, the set of numbers that result from the procedures of MTBFs 
are  the  medium-term  budgetary  plans  or  represent  the  medium-term  fiscal  planning,  but  are  not  the 
MTBF itself. 

55 

 
 
                                                           
Although  overall significant,  progress has been uneven across  specific  areas  of the 
MTBFs, suggesting there is room for improvement. Since 2006, the MTBF index has 
witnessed  a  steady  upward  trend,  illustrating  the  strengthening  of  the  medium-term 
planning dimension of fiscal  policy. However, the latest  available  value of the index is 
still below its maximum value of 1, reflecting the fact that progress can still be made in 
some  areas  where  Member  States  score  less  well.  This  is  notably  the  case  for  the 
connectedness of multiannual budgetary targets with the annual budget, the involvement 
of IFIs in the preparation of the NMTFPs and the level of detail included in the NMTFPs. 

Graph 3.4.1. Fiscal governance database’ MTBF index 

1

0,9

0,8

0,7

0,6

0,5

0,4

2006 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

EU-28 Index

Source: Fiscal governance database 

The documents setting out the Member States’ medium-term fiscal plans are quite 
diverse.  In  half  of  the  cases,  the  NMTFP  is  represented  as  a  dedicated  piece  of 
legislation/coalition  agreement  (e.g. the  Federal  Budgetary  Framework  Law  in  Austria, 
the  Loi  de  programmation  des  finances  publiques  in  France,  Startnota  in  the 
Netherlands) or a self-standing document (e.g. Documento di economia e finanza in Italy, 
fiscal  and  budgetary  strategy  in  Romania).  Nonetheless,  the  SCPs  prepared  for  the 
purposes of EU budgetary surveillance can be designated as the NMTFP or be an integral 
part of it; this happens in two thirds of Member States, most of them from the euro area. 
The precise identification of the NMTFP is complicated in the majority of Member States 
by the fact that different documents are declared to be NMTFPs in different instances and 
the role of each document is not always obvious. While that diversity of fiscal planning 
outlets  is  understandable  in  the  light  of  specific  national  budgetary  procedures,  using 
multiple  documents  to  chart  a  Member  State’s  multiannual  fiscal  course  may  produce 
overlaps and inconsistencies, and generate uncertainty over the ‘true’ medium-term path. 

From the point of view of formulating budgetary targets and ensuring their stability 
over time, two main types of medium-term fiscal plan can be identified: 

 

‘fixed MTBFs’ with a fixed time horizon that will not be extended on a rolling 
basis  –  this  timespan  usually  coincides  with  the  term  of  the  legislature,  which 
typically  entails  stronger  ownership  and  greater  willingness  on  the  part  of 
policy-makers  to  respect  the  fiscal  plans  for  which  they  have  taken  political 

56 

 
 
 
 
responsibility (Sherwood, 2015). The targets can be fixed (i.e. binding for all the 
the  framework)  or  revised  every  year  under  certain 
budget  years  of 
circumstances. Fixed MTBFs are used by very few Member States (e.g. Finland, 
the Netherlands, UK); and 

 

the vast majority of the Member States’ MTBFs, which are prepared on a rolling 
basis, meaning that while the number of years covered remains the same, a new 
outer year is added every year (this is the model followed by the SCPs, for which 
annual updates are required by Regulation No 1466/97). On the one hand, certain 
annual  updates  of  the  macroeconomic  projections  are  quite  natural,  so  as  to 
reflect  the  latest  developments  in  the  underlying  variables,  in  particular  for  the 
outer  years.  On  the  other  hand,  (sizeable)  updates  to  the  budgetary  projections 
are not conducive to a stable fiscal trajectory beyond the budgetary year if there 
are  not  strong  reasons  for  them,  e.g. they  reflect  the  introduction  of  major 
structural reforms. 

Against  that  general  background,  the  analysis  below  provides  an  overview  of 
transposition  and  implementation  developments  linked  specifically  to  the  MTBF 
provisions in Directive 2011/85 and identifies the main challenges faced so far. 

Length of the planning horizon 

Member  States  are  currently  using  fiscal  planning  horizons  of  at  least  3  years. 
Doing so corresponds to the requirement in Article 9(1) of Directive 2011/85 to establish 
‘a  medium-term  budgetary  framework  providing  for  the  adoption  of  a  fiscal  planning 
horizon  of  at  least  3  years’.  In  more  than  half  the  Member  States,  the  minimum  three-
year length of the fiscal planning horizon is set in law. More than one-third operate with 
a  four-year  fiscal  horizon,  whereas  the  United  Kingdom’  medium-term  horizon  covers 
five budget years. The chosen length of the planning horizon is primarily influenced by 
country-specific  administrative  and  budgetary  considerations  and 
its 
appropriateness can only be judged case by case. For example, in France the multiannual 
programming laws should cover a minimum period of three years, while in practice that 
horizon is five years and corresponds to the mandate of the government. While a longer 
time  span  seems  justified,  for  example,  for  MTBFs  that  cover  the  mandate  of  the 
government/legislature,  there  is  currently  no  strong  evidence  suggesting  that  in  general 
‘longer  is  better’.  Indeed,  budgetary  targets  set  over  a  longer  horizon  can  be  subject  to 
bigger  revisions,  as  the  forecasts  for  outer  years  are  surrounded  by  more  uncertainty 
related  mainly  to  macroeconomic  developments  (in  the  case  of  nominal  targets)  or  the 
unobservable nature of variables such as the output gap (for targets in structural terms). 
That instability could be mitigated by setting more robust budgetary targets such as real 
expenditure growth, for example. 

therefore 

Content of the MTBF 

Article  9(2)  of  Directive  2011/85  requires  that  MTBFs  include  ‘procedures’  for 
establishing  a  number  of  items  considered  key  for  sound  and  detailed  fiscal 
planning.  Those  items  follow  a  logical  sequence  of  preparing/presenting  fiscal  plans. 
Thus, Member States must set out medium-term objectives for key budgetary aggregates, 
indicate  the  starting  point  (i.e. baseline  scenario  with  projections  assuming  no  policy 
57 

 
 
 
 
changes), then lay out the medium-term policies that bridge the gap to the medium-term 
objectives and assess the quality of the envisaged policies considering their impact on the 
long-term sustainability of public finances.. 

Member States have endowed their MTBFs with indicators for the main budgetary 
aggregates. Under Article 9(2)(a), MTBFs must include ‘comprehensive and transparent 
multiannual  budgetary  objectives  in  terms  of  general  government  deficit,  debt  and  any 
other  fiscal  indicator  such  as  expenditure,  ensuring  that  they  are  consistent  with  the 
numerical  fiscal  rules’.  The  transposition  of  Directive  2011/85  has  led  the  majority  of 
Member States to specify in national laws the main budgetary objectives to be included 
in the MTBF, using the exact wording of the Directive or something similar to define the 
budgetary policy indicators. In a few Member States the national legal provision is rather 
generic, as it does not refer specifically to public debt or the general government balance. 
In  practice,  the  implementation  of  Article  9(2)(a)  has  not  been  problematic  for  most 
Member States, which include the required multiannual objectives in their medium-term 
plans. A quarter of the Member States include a structural budget balance as one of their 
multiannual budgetary objectives.  

Most Member States provide in various degrees of detail the projections for general 
government expenditure and revenue assuming no policy changes. Article 9(2)(b) of 
Directive  2011/85  requires  that  MTBFs  include  ‘projections  of  each  major  expenditure 
and  revenue  item  of  the  general  government  with  more  specifications  on  the  central 
government  and  social  security  level,  for  the  budget  year  and  beyond,  based  on 
unchanged  policies’.  While  almost  all  Member  States  have  reflected  this  provision  in 
their  national  legal  order,  in  several  cases  the  legal  provisions  make  no  reference  to 
projections that are based on unchanged policies or the coverage in terms of sub-sectors 
is insufficient. Further progress needs to be made by the Member States with respect to 
presenting  the  relevant information fully in  line with the requirements of  the Directive. 
For example, in some Member States data are presented at the general government level 
only  or  not  based  on  no  policy  changes.  Recital  21  of  Directive  2011/85  explains  that 
Member  States  should  provide  the  definitions  and  methodologies  used  for  unchanged 
policies. That aspect of the Directive has received little attention, as only a minority of 
Member  States  explain  the  underlying  methods  for  the  unchanged  policy  projections, 
either  by  reference  to  the  Commission  principles  (European  Commission,  2016b), 
directly in the budgetary documents or in a self-standing document. 

The description in the medium-term fiscal plans of envisaged medium-term policies 
and  their  budgetary  implications  by  major  revenue  and  expenditure  item  is  often 
still incomplete or superficial.  In  order to provide an  assessment of the  quality of the 
envisaged  medium-term  policies,  Article  9(2)(c)  of  Directive  2011/85  obliges  Member 
States  to  provide  ‘a  description  of  medium-term  policies  envisaged  with  an  impact  on 
general  government  finances,  broken  down  by  major  revenue  and  expenditure  item, 
showing how the adjustment towards the medium-term budgetary objectives is achieved 
compared  to  projections  under  unchanged  policies’.  While  almost  all  Member  States 
have  adopted  MTBF-related  legal  provisions  on  medium-term  policies  that  in  general 
replicate  this  requirement  closely,  the  descriptions  of  existing  or  new  medium-term 
policies or assessments of their budgetary impact are often incomplete or non-systematic. 

The  requirement  to  assess  the  long-term  impact  of  the  envisaged  medium-term 
policies has been applied in a patchy fashion. Article 9(2)(d) calls for ‘an assessment 
of  how  in  light  of  their  direct  long-term  impact  on  general  government  finances,  the 

58 

 
 
policies  envisaged  are  likely  to  affect  the  long-term  sustainability  of  public  finances’. 
Many  Member  States  seem  to  have  misinterpreted  this  provision.  On  the  one  hand, 
Directive  2011/85  seeks  to  establish  the  impact  of  the  envisaged  medium-term  fiscal 
policies on the long-term sustainability of public finances. That goal implies that it is the 
broad set of policies presented in each medium-term fiscal plan that is concerned by this 
Article 9(2)(d) covers and that the provision is about their impact in the long run. On the 
other hand, some Member States seem to have been misled by the fact that the wording is 
similar (but not identical) to the seemingly narrower one in the SGP Code of Conduct in 
connection  with  the  preparation  of  the  SCPs54  and,  hence,  did  not  adopt  specific 
transposing provisions. In terms of implementation, in close to half of the Member States 
that  assessment  is  generally  available  in  various  forms:  a  self-standing  chapter  of  the 
SCP, in the national medium-term plan itself or in a separate document (e.g. the CPB’s 
analysis  of  economic  and  budgetary  effects  of  the  financial  appendix  to  the  Coalition 
Agreement  in  the  Netherlands).  At  the  same  time,  nearly  half  of  the  Member  States 
consider  that  assessment  to  be  the  debt-sustainability  analysis  contained  in  the  stability 
programmes  as  mandated  by  the  SGP  (they  are  mostly  euro-area  Member  States  that 
report the stability programme as their NMTFP). Some Member States currently do not 
seem to present the required assessment. 

Article  9(3)  requires  Member  States  to  underpin  the  projections  of  the  budgetary 
aggregates  with  realistic  macroeconomic  and  budgetary  forecasts.  As  explained  in 
Section  3.2,  there  is  a  general  trend  of  increasing  the  prudency  of  forecasts  used  by 
Member States in their budgetary processes. 

Consistency between the MTBF and the annual budget 

Annual  budgets  are  required  to  be  consistent,  in  principle,  with  the  medium-term 
budgetary  plans.  The  requirement  in  Article  10  of  Directive  2011/85  that  ‘annual 
budget legislation shall be consistent with the provisions of the medium-term budgetary 
framework’  has  found  an  equivalent  in  the  national  legal  order  in  more  than  three 
quarters  of  Member  States.  In  its  strictest  interpretation,  the  link  between  the  annual 
budgets and the MTBF translates into a straightforward requirement that the former must 
respect  the  limits  set  in  the  medium-term  fiscal  plans  at  any  time  and  under  any 
circumstances.  When  providing  for  some  flexibility  to  be  embedded  in  the  MTBF, 
Member States include provisions requiring explanations in the event of annual budgets 
departing from the MTFPs (see below). 

Nevertheless, there seems to have been a limited impact of Directive 2011/85 on the 
consistency  of  annual  budgets  with  the  medium-term  budgetary  plans.  A  vast 
majority  of  the  stakeholders  surveyed  declare  that  that  has  remained  unchanged  (see 
Graph  3.4.2).  That  perception  is  slightly  different  among  the  finance  ministries,  which 
tend to a more positive assessment than the IFIs, which in turn are more centred on the 
mean (see Graph 3.4.3). For respondents who indicated an improvement in consistency, 
the main explanatory factors were the enhanced transparency in the MTBF, the need to 

54   ‘(…)the  programmes  should  outline  the  countries’  strategies  to  ensure  the  sustainability  of  public 
finances, especially in light of the economic and budgetary impact of ageing populations and the fiscal 
risks stemming from contingent liabilities’. 

59 

 
 
 
                                                           
explain  deviations  of  the  annual  budget  from  the  multiannual  budgetary  plans  and  the 
introduction  of  clear  provisions  to  align  the  annual  budget  with  the  medium-term 
budgetary  plans.  Nonetheless,  where  it  is  possible  to  update  the  multiannual  budgetary 
plans  every  year,  that  consistency  is  easy  to  achieve,  in  particular  when  the  update  is 
made at the time of the presentation or adoption of the annual budget. 

Member  States  must  duly  explain  any  departure  of  the  annual  budget  from  the 
revenue and expenditure projections laid down in the MTBF. A few Member States 
provide for strict compliance of the annual budget with the ceilings/targets in the MTBF. 
For more than half, the link between the annual budgets and the NMTFPs is potentially 
weaker. In those cases, the legal provisions require the annual budgets to ‘be compiled on 
the  basis  of’,  ‘be  based  on’,  ‘follow  the  objectives  of’,  ‘be  framed  by’  or  ‘be 
consistent/coherent with’ the NMTFPs and generally require explanations in the event of 
departure from the plans. In Bulgaria, Latvia and Luxembourg, the MTBF and the annual 
budgets are prepared at the same time, therefore automatically ensuring consistency with 
the  plans  for  the  first  year  ahead.  In  the  remaining  Member  States,  a  dedicated 
transposing provision is either missing or is incomplete (e.g. a requirement to report, but 
not to explain discrepancies). 

Graph 3.4.2: Consistency of annual budgets with 
medium-term budgetary plans (stakeholders’ 
views) 

Graph 3.4.3: Degree of consistency of annual 
budgets with medium-term budgetary plans 
(stakeholders’ views) 

Worsened

Remained the same

Improved

60%

45%

30%

15%

0%

MoF

IFIs

0%

20% 40% 60% 80%

1

2

3

4

5

Source: Stakeholders survey. 

Notes:  The  graph  shows  in  percentage  points  the 
proportions  of  MoFs  and  IFIs  that  rated  the  degree  of 
consistency  of  annual  budgets  with  medium-term 
budgetary  plans  between  1  and  5  (5  meaning  fully 
consistent). 

Source: Stakeholders survey 

3.4.3.  Effectiveness of MTBF 

Directive  2011/85  explicitly  requires  the  Member  States  to  establish  credible  and 
effective MTBFs (Article 9(1)). The rationale is straightforward: an effective MTBF is 
conducive to compliance with the Member States’ obligations under EU legislation and 
promotes budgetary discipline. Recent empirical evidence suggests that Member States’ 
MTBFs  have  a  strong,  positive  and  statistically  significant  impact  on  fiscal  outcomes 

60 

 
 
 
 
 
measured  by  the  cyclically  adjusted  budget  balances  (European  Commission,  2019a).55 
However,  despite  the  gradual  improvement  of  the  MTBFs’  design,  as  reflected  in  the 
MTBF  index  computed  on  the  basis  of  the  fiscal  governance  database,  several 
dimensions  of  that  index  still  score  quite  low,  in  particular  the  link  between  annual 
budgets  and  medium-term  budgetary  plans,  the  involvement  of  IFIs  in  the  preparation 
and the level of detail of the NMTFPs. This is likely to undermine the effectiveness of 
MTBFs and warrants further improvement effort. 

Several factors determine the effectiveness of MTBFs. The most relevant dimension is 
the binding nature of the medium-term fiscal plans, as determined by the extent to which 
annual  budgets  respect  the  medium-term  path  of  public  finances  set  in  the  MTBF.  A 
second dimension is the frequency and scale of the revisions of multiannual fiscal plans 
allowed  by  the  MTBF.  Thirdly,  the  extent  to  which  explanations  are  provided  in  the 
event  of  the  annual  budget  parameters  departing  from  the  medium-term  plans  is  also  a 
key  factor.  Finally,  other  elements  contributing  to  effectiveness  (both  covered  in  the 
relevant sections of the review) are the MTBF’s coverage of general government bodies 
and funds that are outside the regular budgets and the coordination arrangements between 
sub-sectors  of  general  government  in  terms  of  setting  and  achieving  budgetary 
objectives. Outside the scope of Directive 2011/85, political commitment plays a key part 
in  ensuring  that  the  MTBF  effectively  delivers  on  the  overarching  objectives  of  fiscal 
discipline and compliance with EU rules. 

While  the  Directive’s  provisions  include  certain  design  features  and  define  the 
required  content  of  MTBFs,  they  can  do  very  little  to  make  MTBFs  genuinely 
binding.  No  provision  prevents  Member  States  from  updating  their  MTBFs  yearly  (or 
even twice a year, as is the case for Italy) in terms of multiannual objectives and the path 
towards  them,  and.  Moreover,  there  is  no  obligation  to  explain  adjustments  between 
successive  plans,  except  when  a  new  government  takes  office  (see  Article  11).  As  a 
result,  with  the  exception  of  a  limited  number  of  Member  States  with  fixed  or  highly 
binding MTBFs, short-term budgeting remains a high priority, as annual budgeting plays 
a  very  prominent  role  in  the  overall  budgetary  process.  This  in  turn  leads  to  annual 
adaptations of the MTBF to suit the more immediate needs of annual budgeting, which is 
the opposite to what was envisaged in calling for Member States’ annual budgets to be 
consistent with the MTBF. 

The  binding  nature  of  the  MTBF  in  relation  to  the  annual  budgetary  plan  is  one 
determinant of how  conducive  to  fiscal  discipline an MTBF is.  The extent to which 
annual  budgets  pursue  the  fiscal  trajectory  laid  down  in  the  medium-term  budgetary 
plans and  the  specification of circumstances allowing planned departures  therefrom are 
key for the effectiveness of an MTBF. In this respect, Directive 2011/85 includes rather 
general  provisions  regarding  the  link  between  annual  budgets  and  multiannual  fiscal 
planning, in that its Article 10 requires ‘consistent annual budget legislation’ and states 
that  medium-term  projections  ‘constitute  the  basis  for  the  preparation  of  the  annual 
budget’. 

55   Looking at the effectiveness of the national fiscal frameworks in the Member States, the analysis finds 
that  (for  the  period  2006-2015  for  which  data  are  available)  MTBFs  have  a  strong,  positive  and 
statistically  significant  impact  on  cyclically  adjusted  primary  balances.  Specifically,  the  impact 
amounted to more than 1 pp. of potential GDP for a one-unit increase in the standardised MTBF index 
(calculated  on  the  basis  of  the  fiscal  governance  database),  an  impact  which  is  robust  to  several 
estimation techniques. 

61 

 
 
                                                           
Another  determinant  of  MTBF  effectiveness  relates  to  the  frequency,  timing  and 
circumstances for introducing revisions to the NMTFPs. Directive 2011/85 does not 
indicate how often the MTBF and the resulting fiscal plans should be updated or revised, 
implicitly  advocating  that  they  should  be  as  stable  as  possible  and  not  necessarily 
undergo  changes  every  year.  In  that  respect,  Directive  2011/85  differs  from  other 
provisions  on  medium-term  planning  in  EU  law,  e.g. Regulation  No  1466/97,  which 
requires Member States to submit their SCPs to the Commission annually (in April), and 
Regulation No 473/2013, which requires them to publish their NMTFPs annually (also in 
April). In practice, two thirds of the Member States update their MTBFs  annually.  In a 
few, the MTBF can in theory be updated with every new available forecast, typically in 
spring  and  autumn.  On  the  other  hand,  more  stable  MTBFs  (in  the  sense  of  being  less 
frequently updated in terms of budgetary objectives) exist in a few other Member States, 
such as France, Ireland, Lithuania and the Netherlands. As far as timing is concerned, the 
NMTFPs are typically updated in the spring (in connection with the requirement to send 
SCPs  to  the  Commission  in  April),  whereas  some  Member  States  do  the  update  in  the 
autumn.  When  the  update  coincides  with  the  approval  of  the  budget  for  the  following 
year  and thereby  annual plans  are  inherently  consistent with the MTBF, such approach 
tends to weaken the MTBF vis-à-vis the annual budget. 

Except when a new government takes office, no provision of Directive 2011/85 lists 
circumstances that would justify an update or revision of the MTBF in force. While 
economic realities  often  lead the Member  States to adjust  their medium-term targets or 
projections, the Directive provides no elements allowing to identify the specific cases in 
which such revisions may be justified (e.g. unexpected economic shocks, major structural 
reforms).  In  practice,  almost  no  Member  State  defines  in  the  national  legal  order  the 
circumstances allowing for a revision of the MTBF.56 

Graph 3.4.6. Assessment of explanations for departure of 
the annual budget from medium-term plans 
(stakeholders’ views) 

12% 

6% 

35% 

47% 

detailed

irregular

superficial

other

Source: Stakeholders survey 

Consistency  of  the  targets  set  in 
the  annual  budget  with 
the 
NMTFPs  implicitly  calls  for  a 
process to monitor the indicators 
and  procedures  in  the  event  of 
non-compliance.  While  national 
fiscal  rules  are  accompanied  by 
and 
independent  monitoring 
consequences 
the  event  of 
in 
non-compliance  (which  are  meant 
to  promote  compliance,  including 
by  raising  the  reputational  cost  of 
non-compliance), 
the  Directive 
does not provide such a toolkit for 
MTBFs.  Member  States  usually 
institution  with 
charge 
monitoring  compliance  with  and 
detecting  departures 
the 
MTBF  in  force.  Most  often,  the 
finance ministry alone is in charge 

from 

an 

56   Article 51.1 of the Austrian Constitution specifically lists the cases of imminent harm and those linked 

to the national defence that allow for a revision of the MTBF. 

62 

 
 
                                                           
 
of monitoring ex ante or ex post the consistency of the annual budget with the medium-
term objectives, without an independent institution providing a separate opinion. 

According  to  evidence  available  at  this  stage,  explanations  are  not  systematically 
provided  in  the  event  of  the  annual  budget  departing  from  the  medium-term 
budgetary  plans.  Around  one-third  of  respondents  signal  such  events.  Explanations 
range from irregular to systematic and detailed (see Graph 3.4.6). 

Notwithstanding  those  considerations  on  the  extent  to  which  the  provisions  of 
Directive  2011/85  support  MTBF  effectiveness,  both  finance  ministries  and  IFIs 
positively  assessed  the  relevance  and  sufficiency  of  the  provisions  in  Article  9(2) 
laying  down  the  content  of  national  MTBFs.  The  IFIs  attribute  high  relevance  to  all 
those  provisions,  while  the  finance  ministries  provide  a  more  nuanced  view  and  lower 
scores,  in  particular  on  the  requirement  to  assess  the  long-term  sustainability  of  public 
finances. By contrast, the sufficiency of Article 9(2) of Directive 2011/85 is high for the 
finance  ministries,  but  receives  a  lower  score  from  the  IFIs,  which  consider  that  the 
provisions do not go far enough to ensure that the overall objectives of the Directive are 
achieved. 

      Graph 3.4.7 Sufficiency and relevance of the MTBF provisions (stakeholders’ views) 

Sufficiency 

Relevance 

100%

100%

80%

60%

40%

20%

0%

80%

60%

40%

20%

0%

Article 9.2

FMs

IFIs

Article 9.2(a)

Article 9.2(b)
FMs

Article 9.2 (c )

Article 9.2(d)

IFIs

Note: the figure shows in percentage points the proportions of MoFs and /or IFIs that gave a rating of 4 or 5 to the issues 
above (4- 5 meaning highly relevant/relevant, or highly sufficiency/ sufficient). 

Source: Stakeholders survey, answers from FMs and IFIs. 

The  majority  of  stakeholders  (80%  of  the  respondents)  found  that  MTBFs  had 
contributed  effectively  to  strengthening  fiscal  discipline.  A  large  proportion  of  both 
finance ministries and IFIs assessed effectiveness very positively. The explanations given 
for weak effectiveness in promoting fiscal discipline relate to: 

(i) 

existing  national  provisions  allowing  for  revisions  of  the  MTBF  which 
ultimately can trim down multiannual fiscal planning to one year ahead in the 
end; 

(ii) 

the weak anchoring of annual budgets to multiannual fiscal planning; 

63 

 
 
 
 
(iii) 

(iv) 

the targets for sub-sectors and the impacts of the envisaged policies not being 
detailed enough; and 

lack of clarity as to the roles of the various actors in preparing and approving the 
MTBF. 

Finally,  although  outside  the  scope  of  Directive  2011/85,  the  prominence  of  the 
medium-term dimension in the national fiscal debate and the political commitment 
to  responsible  public finances  are  important  drivers  of  fiscal  outcomes.  As  regards 
public  prominence,  practices  span  from  active  involvement  and  sometimes  even  a  vote 
by the parliament in over half the Member States (which typically gives more weight and 
visibility to the plans) to a simple presentation by the budgetary authorities preparing the 
MTBF, with no follow-up expected from the parliament in a third of Member States or 
simple  notification  in  a  minority.  In  some  cases,  where  the  parliament  votes  on  those 
plans, much less time is allocated than to the annual budget. That discrepancy underlines 
once  more  that  the  dichotomy  between  annual  budgets  and  medium  term  budgetary 
planning is hard to overcome and the two seem to be treated largely as two distinct work 
streams,  in  particular  where  they  are  adopted  adoption  at  different  times  (typically  in 
spring  for  NMTFPs  and  in  autumn  for  annual  budgets).  The  Member  States  where 
political commitment is high, in particular where coalition agreements are signed at the 
start  of  a  government’s  mandate,  tend  to  have  more  effective  MTBFs.  However,  as 
important as the above drivers they may be, they are under national sovereignty and thus 
outside the scope of EU law. 

Graph 3.4.8. Effectiveness of MTBFs in promoting fiscal 
discipline (stakeholders’ views) 

0,7
0,6
0,5
0,4
0,3
0,2
0,1
0

Average or
below

High

Very high

MoF

IFI

Notes:  The  chart  shows  in  percentage  points  the  proportion  of 
MoFs  and/or  IFIs  that  gave  a  rating  of  4  or  5  to  the  issues  of 
relevance and suitability (4/5 meaning relevant/highly relevant, or 
sufficient/highly sufficient) 

Source: Stakeholders survey 

64 

 
 
 
 
 
3.4.4.  Conclusions 

Member  States’  arrangements  for  medium-term  fiscal  planning  have  developed 
significantly in recent years. This is partly due to the Directive 2011/85, together with 
other  relevant  EU  drivers  such  as  the  preventive  arm  of  the  SGP  and  the  two-pack’s 
Regulation 473/2013. 

Directive  2011/85  required  Member  States  to  establish  credible  and  effective 
national MTBFs that extend fiscal planning beyond the annual budgetary process, 
in  a  comprehensive  and  transparent  manner,  while  effectively  promoting 
compliance with the EU fiscal framework. To that end, it laid down a number of basic 
features for the MTBFs: multiannual budgetary objectives covering the whole of general 
government,  multiannual  projections  of  major  revenue  and  expenditure  items  assuming 
no  policy  changes,  a  description  of  envisaged  medium-term  policies  (with  their 
budgetary  implications)  and  an  assessment  of  their  direct  impact  on  the  long-term 
sustainability  of  public  finances.  Directive  2011/85  also  established  that  the  annual 
budget must be prepared on the basis of the revenue and expenditure projections in the 
MTBF. 

Overall, Directive 2011/85 has had a positive impact as regards MTBFs, as Member 
States  have  largely  incorporated  its  requirements  into  their  multiannual  fiscal 
planning,  but  in  some  respects  implementation  to  date  has  been  unsatisfactory. 
Currently,  all  Member  States  have  a  more  or  less  developed  MTBF  that  governs  the 
preparation  of  their  medium-term  fiscal  plans.  This  can  take  a  variety  of  forms,  e.g. a 
dedicated piece of legislation, a self-standing domestic document, the SCPs  themselves 
or  a  combination  thereof.  More  concretely,  all  Member  States’  MTBFs  contain 
multiannual objectives for key budgetary aggregates over a period of at least three years. 
While most Member States provide, in various degrees of detail, projections for general 
government  expenditure  and  revenue  assuming  no  policy  changes,  descriptions  in  the 
medium-term  fiscal  plans  of  envisaged  medium-term  policies  and  their  budgetary 
implications  by  major  revenue  and  expenditure  items  are  often  still  incomplete  or 
superficial.  Furthermore,  the  assessment  of  those  policies’  long-term  impact  on  the 
sustainability  of  public  finances  is  often  not  presented  properly,  possibly  because  of 
Member  States  having  misinterpreted  the  requirement  in  Directive  2011/85.  While 
transposing provisions generally require annual budgets to be consistent with the MTBF, 
their impact on strengthening the link between the annual budget  and the medium-term 
budgetary plans seems to have been limited so far, with a vast majority of stakeholders 
arguing  that  consistency  has  remained  unchanged.  Finally,  more  attention  needs  to  be 
given to  having systematic and/or detailed explanations as to  why annual  budgets  have 
departed from the medium-term fiscal planning projections. 

Despite  challenges  related  to  medium-term  planning,  Member  State  practitioners 
are positive overall on the added value of the MTBF provisions in Directive 2011/85. 
Most stakeholders see them either as complementary to the EU rules or consistent with 
them. 

While Directive 2011/85 usefully includes design features that determine the content 
of  MTBFs  and  establishes  that  annual  budgets  should  pursue  the  medium-term 
fiscal course charted by the MTBF, its impact in terms of making MTBFs genuinely 
binding has  been  limited.  No  provision  of  Directive  2011/85  prevents  Member  States 
from updating their medium-term plans yearly in terms of multiannual objectives and the 
path towards them, and there is no obligation to explain adjustments between successive 
65 

 
 
plans,  except  when  a  new  government  takes  office.  The  Directive  does  not  define 
circumstances  that  would  justify  an  update  or  revision  of  the  MTBF  in  force.  While 
NFRs must be accompanied by independent monitoring and consequences in the event of 
non-compliance,  Directive  2011/85  does  not  provide  for  such  compliance-enhancing 
arrangements  for  the  MTBFs.  As  a  result,  in  spite  of  the  important  structural 
improvements  to  MTBFs  and  the  greater  transparency  brought  about  by  Directive 
2011/85, annual budgeting remains the dominant driver of fiscal policy choices in most 
Member States and can still fairly easily override medium-term fiscal plans.57  

3.5.  Coordination mechanisms across sub-sectors of general government 

3.5.1.   General considerations 

Sub-national government sub-sector in the EU 

The  provisions  of  the  EU  budgetary  surveillance  framework  apply  to  the  general 
government sector as a whole, as defined in ESA2010. The sector is divided into four 
sub-sectors: central government, state government, local government and social security 
funds.  In  terms  of  expenditure,  central  government  is  the  largest  sub-sector  of  general 
government, accounting in a median Member State for 65% of total general government 
expenditure  (in  2018).  State  and  local  expenditure  accounted  for  a  quarter  of  total 
expenditure and social security for 37% (unconsolidated).  

In  the  Member  States,  budgetary  policy  is  conducted  at  various  administrative 
levels.  While  social  security  expenditure 
is  statistically  separate  from  central 
government,  social  security  funds  do  not  usually  have  expenditure  autonomy  and  are 
governed  by  central  authorities.  It  differs  from  the  state  government  and  local 
government  sector,  as  sub-national  authorities,  as  with  central  government,  also  have 
budgetary  powers  and  implement  fiscal  policy  on  their  territory  in  a  more  or  less 
autonomous way. For that reason, the rest of this chapter focuses on the state and local 
government and leaves aside the social security funds.  

The  organisation  of  budgetary  competences  in  the  Member  States  mirrors  the 
general  administrative  organisation  of  the  state  and  varies  greatly  among  them. 
Multiple factors influence the design of administrative and budgetary structures, such as 
history,  social,  political  and  economic  characteristics,  size,  population,  geography,  etc. 
As a consequence, the sub-national government level in the EU is very diverse, with its 
organisation,  structure,  role  and  competences  varying  significantly  among  the  Member 
States. In 12 Member States there is one sub-national level of administration, two levels 
in 11 Member States and three levels in 5 Member States. Additionally, there exist many 
specific  entities,  districts  etc.,  with  specific  roles,  functions  and  competences,  which 
blurs the distinction between individual layers and makes the picture even more complex. 
Three Member States (Austria, Belgium and Germany) are formally organised as federal 
in nature. However, although qualified as unitary states, the United Kingdom has some 

57  In  December  2017,  the  Commission  tried  to  further  promote  a  stronger  medium-term  orientation  in 
Member  States’  fiscal  policies  in  its  proposal  for  a  Council  Directive  laying  down  provisions  for 
strengthening fiscal responsibility and the  medium-term budgetary orientation in the  Member States, 
(COM(2017) 824 final). 

66 

 
 
 
                                                           
characteristics of a federal state after the devolution reform in 1997, Italy is considered a 
‘regionalised country’ and Spain’s Autonomous Communities (comunidades autónomas) 
are considered statistically within the federal sector as quasi-federated entities.  

Over recent decades, until it was interrupted by the latest crisis, Member States saw 
a visible trend towards the decentralisation of their public finances and reassigned 
spending responsibilities to lower levels of administration. Public expenditure at sub-
national58  level  in  the  EU  as  a  whole  was  an  increasing  share  of  general  government 
expenditure up until the beginning of the crisis and reached almost 34% in 2009 (Graph 
3.5.1).  A  more  granular  look  qualifies  that  picture,  as  already  since  2000  the  median 
Member  State  has  seen  –  after  a  steep  increase  –  a  steady  decline  in  the  share  of  sub-
national  public  spending.  Sub-national  revenue  (including  transfers  from  central 
government)  seem  to  have  been  more  stable  and  fluctuating  close  to  30%  of  general 
government  revenue  since  the  early  2000s.  Nevertheless,  there  has  also  been  a  steady 
downward trend since 2010 (Graph 3.5.2). 

Graph 3.5.1. Sub-national expenditure as 
percentage of general government 
expenditure in the EU 

Graph 3.5.2. Sub-national revenue as 
percentage of general government revenue 
in the EU 

38

36

34

32

30

28

26

24

1
0
0
2

2
0
0
2

3
0
0
2

4
0
0
2

5
0
0
2

6
0
0
2

7
0
0
2

8
0
0
2

9
0
0
2

0
1
0
2

1
1
0
2

2
1
0
2

3
1
0
2

4
1
0
2

5
1
0
2

6
1
0
2

7
1
0
2

8
1
0
2

38

36

34

32

30

28

26

24

1
0
0
2

2
0
0
2

3
0
0
2

4
0
0
2

5
0
0
2

6
0
0
2

7
0
0
2

8
0
0
2

9
0
0
2

0
1
0
2

1
1
0
2

2
1
0
2

3
1
0
2

4
1
0
2

5
1
0
2

6
1
0
2

7
1
0
2

8
1
0
2

EU aggregate

Median

EU aggregate

Median

Source: European Commission 

Source: European Commission 

As  a  result,  in  2018  around  a  quarter  of  general  government  expenditure  and 
revenues in the EU was attributed to sub-national authorities (26.6% of expenditure 
and  24.5%  of  revenue).  Differences  among  the  Member  States  were  very  large 
(GraphGraph 3.5.3).  In  five  Member  States  (Belgium,  Denmark,  Germany,  Spain,  and 
Sweden), at least around half of general government revenue and expenditure takes place 
at sub-national level. Denmark stands out as the most decentralised Member State in that 

58 Unless noted otherwise, the term “sub-national” refers to the local level and the state level. The latter is 

distinguished in the Eurostat data only in Belgium, Germany, Spain and Austria.  

67 

 
 
 
 
 
 
 
                                                           
respect with around 65% of both spending and revenue. At the other end of the spectrum, 
in Malta, Cyprus, Greece and Ireland, sub-national spending and revenue are below 10% 
of total general government aggregates, with as little as 1% in Malta. Those differences 
only  partly  reflect  administrative  features,  such  as  the  division  between  federal  and 
unitary states, or natural factors such as population size and area.  

The  economic  literature  has  detected  various  effects  of  fiscal  decentralisation.  On 
the  one  hand,  it  makes  it  easier  to  match  the  provision  of  public  services  to 
heterogeneous  consumer  preferences  and  leads  to  efficiency  gains  and  overall  to  a 
smaller government sector. On the other hand, it can create fiscal vulnerabilities, as fiscal 
discipline is more difficult to enforce at sub-national level (see, for example, Eyraud and 
Moreno  Badia  (2013).  Among  other  things,  the  literature  highlights  the  nature  of 
decentralisation and fiscal coordination between levels of government as the key factors 
for  budgetary  outcomes  at  general  government  level  (see,  for  example,  Public  Finance 
Report, 2012). 

Graph 3.5.3. Sub-national expenditure and revenue as percentage of general government 
aggregates in Member States (2018) 

70

60

50

40

30

20

10

0

MT CY EL IE LU PT HU SK SI FR BG LT UK EE HR RO LV CZ IT NL PL AT FI DE ES BE SE DK

Expenditure

Revenue

Source: Commission 

Budgetary  policy  at  sub-national  level  matters  for  the  entire  general  government 
and  hence  for  compliance  with  EU  fiscal  rules.  As  the  EU  budgetary  surveillance 
framework applies to the general government sector as a whole (as explained above), the 
the  coordination 
conduct  of  budgetary  policy  by  sub-national  authorities  and 

68 

 
 
 
 
 
 
arrangements  between  public  authorities  at  different  levels  are  key  components  if 
national budgetary frameworks are to ensure the consistent conduct of fiscal policy at all 
levels of government and effective application of EU and national fiscal rules. 

Requirements of Articles 12 and 13 of Directive 2011/85 

Directive 2011/85  requires  consistent application of its rules across  the sub-sectors 
of general government. In the light of the above, Article 12 stipulates that the measures 
provided for by Directive 2011/85 must be consistent across, and comprehensive in the 
coverage of, all sub-sectors of general government. Also, to ensure good administration, 
Article 13  stresses  the  importance  of  a  clear  delineation  of  budgetary  responsibilities 
among  government  tiers  and  requires  Member  States  to  ‘establish  appropriate 
mechanisms  of  coordination  across  sub-sectors  of  general  government  to  provide  for 
comprehensive and consistent coverage of all sub-sectors of general government in fiscal 
planning,  country-specific  numerical  fiscal  rules,  and  in  the  preparation  of  budgetary 
forecasts  and  setting-up  of  multiannual  planning  as  laid  down,  in  particular,  in  the 
multiannual budgetary framework’. 

The  provisions  aim  to  ensure  the  consistent  and  comprehensive  inclusion  of 
sub-national  authorities  in  domestic  budgetary  frameworks.  The  provisions  of 
Articles  12  and  13  are  relatively  general,  which  reflects  the  large  variety  of 
administrative  structures  in  the  Member  States.  However,  the  provisions  are  mutually 
reinforcing.  The  requirement  to  ensure  consistent  coverage  of  all  general  government 
sub-sectors  is  consistent  with  and  reinforces  the  requirement  to  establish  coordination 
mechanisms  across  sub-sectors.  Such  mechanisms  cannot  be  expected  to  function 
properly  if  the  requirement  of  Article  13(2)  is  not  duly  fulfilled,  i.e. sub-sectors’ 
responsibilities  are  not  clearly  defined.  These  provisions,  taken  as  a  whole,  require 
Member States to ensure that every sub-sector, in particular sub-national finances, is an 
integral part of the national budgetary framework. 

The  focus  of  Articles  12  and  13  is  clearer  in  the  light  of  the  overall  objective  of 
Directive 2011/85. For the purposes of Directive 2011/85, coordination arrangements are 
mechanisms that ensure consistent policy in the entire general government sector in line 
with the budgetary obligations stemming from EU law. Therefore, the Directive does not 
address issues such as the division of tax powers, equalisation arrangements, etc. 

3.5.2.  Main developments 

Any assessment of the suitability of Directive 2011/85’s provisions in this area needs 
to  take  account  of  other  developments  affecting  coordination  mechanisms.  As  in 
other areas covered by this review, developments external to the Directive or even to EU 
law influenced the design of Member States’ coordination arrangements. The first such 
development  was  the  signing  of  the  TSCG,  which  prompted  some  Member  States  to 
reform their national fiscal frameworks in order to deliver on their  commitments made in 
the Fiscal Compact. Secondly, Regulation No 473/2013 introduced a common budgetary 
timeline inter alia requiring the euro area Member States to present by 15 October each 
year,  besides  the  draft  central  government  budget,  the  main  parameters  of  the  draft 
budgets  of  all  other  sub-sectors  of  general  government.  Similarly,  the  macroeconomic 
adjustment  programmes,  e.g. in  Portugal  and  Greece,  contained  requirements  related  to 
sub-national fiscal frameworks. 

69 

 
 
 
Nevertheless, without implying causality, this section presents the main features of 
coordination  arrangements  currently  in  place  in  the  Member  States  and  draws 
some  tentative  conclusions  as  to  their  appropriateness  in  the  sense  envisaged  by 
Directive  2011/85.59  In  general,  one  of  the  most  striking  features  of  Member  States’ 
coordination  arrangements  is  their  diversity,  which  mirrors  the  heterogeneous  and 
complex nature of sub-national administrative arrangements. Still, a number of common 
tools can be distinguished, which are used in order to coordinate budgetary policy across 
government sub-sectors, such as: 

 

 

 

sub-national fiscal rules; 

the  involvement  of  sub-national  authorities  in  the  annual  and  medium-term 
budgetary processes; and  

dedicated coordination fora.  

Formal sub-national agreements (‘national stability pacts’) are also distinguished here as 
a  developed  form  of  coordination  specific  to  federal  or  regionalised  countries.  These 
tools  are  often  used  in  parallel,  sometimes  reinforcing  each  other,  but  also  creating  a 
dense web of complex requirements. 

a)  Sub-national fiscal rules  

Sub-national  governments  are  very  often  subject  to  rules  set  out  in  national 
legislation60 that impose constraints on their finances. These can be considered a tool 
for  ‘hard’  or  ‘forced’  coordination,  as  they  seek  to  control  the  financial  position  of  the 
sub-national  sector  and  thus  its  contribution  to  the  general  government  fiscal  stance. 
These rules apply specifically to local and regional authorities and aim to guide or restrict 
their fiscal behaviour. The rules considered here are not those rules that apply to general 
government  as  a  whole,  since  such  rules  do  not  provide  useful  guidance  for  individual 
sub-national authorities.  

In 2018, 33 rules applied to sub-national authorities in 18 Member States. In most of 
those countries, there was a single rule for the sub-national sector, which was applicable 
to the local governments. The remainder had two to four rules for sub-national entities. 

A  balanced  budget  rule  was  by  far  the  most  common  type  of  rule  reported 
(Table 3.5.1).  In  2018,  there  were  23  budget  balance  rules  at  local  or  regional  level, 
including two expressed in structural terms. Six Member States had debt rules, only two 
had expenditure rules, while none reported any revenue rules for the sub-national sector. 
Legal  bases  differed  among  the  Member  States,  with  half  the  rules  enshrined  in  the 
national constitution or a law with a strengthened status in the national legal order. One 
rule,  the  balanced  budget  rule  for  local  authorities  in  Ireland,  was  based  on  a  political 
commitment. 

59   The    Fiscal  Governance  Database  and  the  stakeholders’  survey  are  the  main  sources  of  information. 

They are supplemented by other publicly available information. 

60   The information provided here does not consider rules that individual sub-national governments could 
adopt individually for themselves, but only rules applicable to them in a horizontal manner by virtue of 
national legislation.  

70 

 
 
 
                                                           
 Table 3.5.1. Sub-national fiscal rules in the Member States (2018) 

Regional government 

Local 

government 

Budget balance rule  5 

Expenditure rule 

Debt rule 

Revenue rule 

Total 

2 

1 

0 

8 

18 

2 

7 

0 

25 

Source: Fiscal Governance Database, European Commission 

The  strength  of  rules  depends  on  many  different  factors  and  faces  specific 
challenges at sub-national level. The legal basis is only one of the elements relevant for 
the strength of a rule. Other features include scope for setting or revising objectives, the 
body  in  charge  of  monitoring,  enforcement  mechanisms  and  visibility.  On  the  basis  of 
these elements,  the  Fiscal  Governance  Database allows us to  calculate an index of rule 
strength.  The  results  show  that  the  strength  of  sub-national  rules  does  not  differ 
significantly from  that of general  government  rules. However, sub-national  rules face  a 
number  of  specific  challenges  affecting  their  effectiveness  and  strength;  these  relate  to 
monitoring,  specification,  enforcement  and  accountability  and  stem  from  the  different 
characteristics  of  sub-national  government  as  compared  to  general  government, 
e.g. fragmentation, dependency on transfers from central  government, less visible rules, 
etc. 

Many sub-national rules are of a ‘golden rule’ type. This feature of sub-national rules 
reflects  the  long-standing  practice  in  the  EU  of  allowing  local  government  borrowing 
only for capital investment. In fact, apart from the numerical fiscal rules reported in the 
Fiscal  Governance  Database,  numerous  legal  and  administrative  restrictions  in  the 
Member States restrict borrowing at sub-national level to investment purposes only.  

b)  Involvement in the annual budgetary process and medium-term plans 

In  some  Member  States,  sub-national  authorities  are  not  actively  involved  in  the 
budgetary  processes.  As  the  EU  fiscal  framework  requires  presentation  of  budget 
figures  for  the  entire  general  government  sector,  in  all  Member  States  the  central 
authorities  or  institutions  (ministries  of  finance  and  interior,  statistical  offices)  monitor 
developments in local finances, including for consolidation purposes. In their budgetary 
documents,  all  Member  States  present  information  for  the  whole  general  government 
sector. Whereas monitoring and oversight of local finances is necessary for coordination 
within the general government sector, it cannot be treated as a coordination mechanism 
per se, although many stakeholders see it as such. In around a quarter of Member States 
this is the sub-national authorities’ only involvement in the budgetary process. These are 
usually  highly  centralised  Member  States  where  the  sub-national  sector  is  a  small 
fraction of general government or sub-national finances are restricted by fiscal rules. 

71 

 
 
 
 
 
In  most  Member  States,  however,  central  authorities  interact  with  sub-national 
authorities more actively during the budgetary process. The intensity and type of this 
involvement  vary  widely  across  Member  States.  This  interaction  can  take  the  form  of 
regular  formal  contacts  with  sub-national  authorities,  sometimes  represented  by  their 
associations.  Its  purpose  is  most  often  confined  to  exchange  of  information,  e.g. the 
presentation of budgetary objectives and fiscal stance by the central governments and the 
budgetary  situation  and  plans  at  sub-national  level.  For  instance,  in  Latvia  the 
government  is  required  to  negotiate  with  the  Association  of  Local  and  Regional 
Governments  the  issues  of  interest  to  the  local  authorities.  A  report  from  these 
negotiations is attached to the draft budget law and submitted to the parliament. In some 
(usually small) Member States, even if no formal requirements exist, local authorities are 
habitually  in  frequent  informal  contact  with  the  government.  This  is  the  case  in 
Lithuania,  for  instance,  where  the  authorities  report  regular  contacts  with  the 
municipality of Vilnius, by far the biggest, even though there seem to be no formal basis 
for it.  

The  sub-national  authorities  are  sometimes  also  involved  in  the  process  of 
developing  the  medium-term  fiscal  plans.  The  Fiscal  Governance  Database  also 
collects  information  on the involvement of sub-national  governments  in  developing  the 
medium-term budgetary  plans. Among the 25 Member States  for which such data have 
been collected, almost all report some type of coordination with sub-national authorities 
in  this context.  In 11 Member States, this coordination takes place through  regular and 
direct meetings with sub-national authorities or their representatives, but in only half of 
them are such meetings required by law.    

c)  Coordination through dedicated coordination fora 

Some  Member  States  have  further  developed  the  mechanisms  of  budgetary 
coordination  with  sub-national  authorities  and  have  created  formal  dedicated 
coordination  fora  for  that  purpose.  This  is  most  often  the  case  in  federal  and 
regionalised  countries.  While  the  design  of  these  fora  is  usually  straightforward,  the 
complexities of their actual functioning reflect the importance of the political issues they 
have to  deal  with.  The fora usually have  a strong legal  base  and their role, functioning 
and mandates are well defined. They are often tasked with more demanding objectives, 
such  as  setting  fiscal  targets  and  breakdowns  among  sub-sectors  and/or  sub-national 
entities. For instance, in Italy, the coordination with sub-national authorities takes place 
in  three  levels  of  ‘conferences’  between  the  central  and  sub-national  governments:  the 
Conference  of  State-Regions,  the  Conference  of  State-Municipalities  and  Local 
Authorities,  and  a  Unified  Conference  that  includes  all  the  members  of  the  other  two 
conferences.  

d)  National stability pacts  

‘Domestic  stability  pacts’  are  probably  the  most  developed  form  of  coordination 
between  government  levels.  These  have  been  agreed  in  some  federal  or  regionalised 
countries  (Tournemire,  2014).  They  constitute  formal  agreements  of  a  constitutional  or 
quasi-constitutional  nature  between  the  independent  levels  of  administration,  which  are 
intended to meet fiscal objectives. While the pacts differ in many respects, they usually 
combine certain common features, such as: 

 

formal and regular coordination with representatives of government sub-sectors;  

72 

 
 
 
 
 

 

 

the  objective  of  coordination  focusing,  but  not  confined  to,  the  definition  of 
individual fiscal targets for government sub-sectors;  

joint monitoring based on agreed indicators; and  

corrective procedures. 

The  broad  nature  of  the  provisions  of  Directive  2011/85  on  coordination 
mechanisms  allows  the  Member  States  to  maintain  their  various  arrangements, 
provided  they  are  ‘appropriate’.  The  Member  States  can  preserve  the  specific 
characteristics  of  their  coordination  arrangements,  tailored  to  local  conditions  and 
national preferences. While Directive 2011/85 accommodates this variety, it still requires 
that  the  coordinating  mechanisms  be  ‘appropriate’.  The  general  nature  of  this 
requirement and the variety of coordination arrangements make it difficult to assess their 
appropriateness.  However,  taking  into  account  the  overall  objectives  of  Directive 
2011/85,  one  could  reasonably  consider  as  ‘appropriate  mechanisms’  those  which 
effectively ensure that the sub-national entities contribute to achieving a Member State’s 
fiscal  policy  objectives  in  line  with  the  SGP  requirements.  From  this  perspective,  an 
attempt  can  be  made  to  gauge  tentatively  the  ‘appropriateness’  of  the  coordination 
mechanisms using two approaches. 

Graph 3.5.4. Fiscal balances by sub-sector of the general government, Member States (% of 
GDP) 

1,0

0,0

-1,0

-2,0

-3,0

-4,0

-5,0

-6,0

-7,0

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Local government

State government

Central government

Notes: Nominal balance (net lending/net borrowing) in government sub-sectors, simple average across EU Member 
States. 

Source: European Commission 

A  first  approach  would  look  at  the  contribution  of  the  sub-national  sector  to  the 
budgetary  discipline  of  general  government.  From  this  perspective,  the  assessment 
should  overall  be  positive:  the  financial  position  of  sub-national  authorities  has  been 
significantly better than that of general government as a whole (Graph 3.5.4). This is the 

73 

 
 
 
 
case  for  the  local  governments,  in  particular,  where  the  position  has  been  broadly 
balanced.  The  difference  in  the  development  of deficits  at  the  sub-national  and  general 
government levels also reflects different fiscal policy objectives. In particular, the large 
central  government  deficit  during  the  crisis  is  the  outcome  of  the  macroeconomic 
stabilisation policy, which is normally (and in line with economic theory) allocated to the 
central level. Also, a large part of sub-national revenue comes from transfers from central 
government, mostly in the form of grants.   

Graph 3.5.5. Decentralisation of expenditure and correlation of expenditure growth between 
the central and local government, Member States 

100

80

60

40

20

0

-20

-40

-60

-80

-100

MT CY EL IE LU PT HU SK SI FR BG LT EE UK HR LV RO CZ IT NL PO AT FI BE DE ES SE DK

Decentralisation

Correlation of expenditure growth

Notes:  Decentralisation  measured  as  the  share  of  sub-national  expenditure  in  total  general  government  expenditure. 
Correlation  measured  as  a  5-year  rolling  window  correlation  coefficient,  multiplied  by  100,  between  growth  of 
expenditure at the central government and at the sub-national level.  

Source: European Commission 

to  assessing 

The  second  approach 
the  appropriateness  of  coordination 
arrangements would take as starting point the notion of coordination. This approach 
would  start  from  the  premise  that  the  arrangements  are  meant  to  coordinate  budgetary 
policies  across  sub-sectors,  with  the  central  level  giving  the  overall  orientation  of  the 
general  government  policy  stance.  From  this  perspective,  Graph 3.5.5  shows  the 
correlation of sub-national and central government expenditure growth and sets it against 
the level of spending decentralisation. The intuition behind this approach is that a country 
with  a  high  level  of  decentralisation  would  require  better  coordination  mechanisms  in 
order  to  ensure  consistent  implementation  of  budgetary  policy  and  hence  should  show 
higher  correlation  between  the  policy  implemented  at  the  central  and  the  sub-national 
levels. In a country where the share of sub-national expenditure is small, a heterogeneous 
policy  at  the  sub-national  level  does  not  create  risks  for  general  government  and  the 
emphasis  on  coordination  arrangements  is  less  crucial.  A  caveat  here  is  that  the 
correlation  of  expenditure  growth  is  only  a  crude  measure  of  the  efficiency  of 
coordination,  as  coordination  can  have  various  objectives,  not  only  aligning  policy 
stances.  Nevertheless,  the  picture  in  Graph 3.5.5  is  also  positive,  as  in  the  most 
diversified  Member  States  the  growth  of  central  and  sub-national  government 

74 

 
 
 
expenditure  was  highly  correlated.61  It  should  be  also  flagged  that  the  stakeholders 
themselves  asses  the  general  effectiveness  of  the  coordination  mechanisms  in  their 
Member State as medium-high (Graph 3.5.6).  

Directive 2011/85 could influence the design of the coordination arrangements to a 
limited  extent  only.  Beyond  the  above  brief  overview  of  coordination  mechanisms 
currently in place, the question remains, as flagged above, as to the extent to which the 
Directive has influenced their existence and design. It is rather unlikely that the influence 
has been large, given in particular:  

 

 

the need for the coordination arrangements to reflect the general organisation of 
the state and hence their constitutional nature;  

the  relatively  general  and  unspecific  nature  of  the  requirements  of  Articles  12 
and 13 (which is to some extent the natural outcome of the first factor); and  

  also related, the fact that the coordination arrangements had been in place before 
Directive  2011/85,  although  several  reforms  have  been  implemented  since  its 
adoption.  

While some stakeholders flagged the general nature of the provisions as a weakness, they 
in general consider that the provisions bring relatively high added value, that they add to 
existing EU provisions in this area and that they have been effective in supporting fiscal 
discipline in line with the SGP (see Annex for more details).  

Graph 3.5.6. Effectiveness of coordination 
arrangements across government sub-sectors 
(stakeholders’ views)  

18

16

14

12

10

8

6

4

2

0

1

2

3

4

5

Notes: Stakeholders’ answer to the question ‘How would you 
rate  the  effectiveness  of  the  coordination  arrangements  in 
your  country  between  1  (not  effective)  and  5  (very 
effective).’  

61   The  outlier  position  of  Belgium  stems  from  the  federalism  reform  and  a  secular  trend  towards 

increasing sub-national and decreasing federal expenditure. 

75 

 
 
 
                                                           
3.5.3.  Conclusions 

All  Member  States  now  have  provisions  reflecting  the  requirements  of  Articles  12 
and  13.  In  other  words,  all  Member  States’  fiscal  frameworks  cover  all  sub-sectors  of 
general government and mechanisms exist to ensure budgetary coordination across sub-
sectors. This is a basic requirement to ensure that the whole general  government sector 
contributes to achieving the domestic fiscal objectives and, ultimately, compliance with 
the EU budgetary rules, which is the aim of Directive 2011/85. It is less straightforward 
to judge whether these mechanisms are ‘appropriate’, as required by Directive 2011/85, 
but there is some evidence pointing in this direction. It is less certain that the Directive 
has  had  a  significant  role  in  incentivising  Member  States  to  create  or  upgrade  their 
coordination  mechanisms,  which  are  heavily  influenced  by  their  general  administrative 
organisation and the constitutional competences of the various administrative levels. 

4.  OVERALL ASSESSMENT AND CONCLUSIONS 

Since  the  adoption  of  Directive  2011/85,  Member  States’  budgetary  frameworks 
have  seen  rapid  and  broad-based  development.  There  are  stronger  budgetary 
frameworks in all areas covered by it. Progress has been more visible in those Member 
States  that  had  no  or  only  basic  domestic  frameworks  before,  and  Directive  2011/85 
provided the basis for building their national frameworks. 

Directive  2011/85  has  been  part  of  a  worldwide  trend  towards  strengthening 
budgetary frameworks. Wide-ranging reforms of national fiscal frameworks have also 
been  taking  place  outside  the  EU.  The  'EU  model'  of  promoting  rule-based  fiscal 
frameworks  has  for  some  time  been  the  default  reference  for  countries  wishing  to 
strengthen  domestic  frameworks  and  make  them  more  effective  in  ensuring  fiscal 
discipline  and  sustainability.  Recent  economic  research  provides  empirical  evidence  of 
the  greater  effectiveness  of  comprehensive  frameworks  in  which  fiscal  rules  are 
accompanied  by  independent  monitoring  arrangements  (as  mandated  by  the  Directive) 
and embedded in medium-term frameworks (see e.g. Eyraud et al. 2018). 

The above analysis of developments in the various areas of budgetary frameworks 
since  the  adoption  of  the  Directive  reveals  strong  progress  in  general,  but  several 
areas are worth highlighting: 

  national numerical fiscal rules, which have grown visibly in number and strength 
across  the  EU  and  are  now  a  key  component  of  domestic  frameworks  in  all 
Member States. While the adoption of many new rules created a fairly  complex 
environment, there are indications that the rules are effective overall and promote 
compliance  with  EU  fiscal  rules.  The  design  requirements  of  Directive  2011/85 
have contributed to that outcome; 

  medium-term fiscal planning, where Directive 2011/85 has introduced a number 
of  specific  requirements  that  have  expanded  the  content  and  improved  the 
transparency of national MTBFs with a view to enhancing their role as a medium-
term anchor of fiscal policy; 

 

fiscal  statistics,  where  Directive  2011/85  has  triggered  the  production  and 
publication  of  new  streams  of  data,  leading  to  tangibly  improved  fiscal 

76 

 
 
 
transparency. The success related to contingent liabilities is a very good example 
of  how  Directive  2011/85  has  led  to  the  creation  of  a  new  stream  of  public 
information that significantly improves the monitoring of fiscal risks in the EU; 

 

there  are  indications  that  the  reliability  of  forecasts  and  the  transparency  of  the 
forecasting process have improved.  

The analysis also  highlights instances where Directive 2011/85  has so far been less 
successful in achieving the envisaged results, in particular: 

 

the  mere  transposition  of  its  provisions  on  medium-term  budgetary  frameworks 
has  generally  not  been  enough  to  give  medium-term  fiscal  planning  a  more 
important  role in  the budgetary process.  The MTBFs  are still to  an overly large 
extent subordinate to the annual budget processes and do not create a sufficiently 
stable and credible medium-term perspective for fiscal policy; 

  not  all  fiscal  rules  in  the  Member  States  are  well  specified  and  equipped  with 
strong  compliance  safeguards.  In  particular,  there  is  considerable  scope  to 
improve  them  as  regards  defining  the  consequences  of  non-compliance  and 
independent monitoring; 

  as  far  as  statistics  and 

transparency  are  concerned, 

the  usefulness  of 
high-frequency  statistics  has  been  rather  disappointing  and  the  published 
information  on  tax  expenditures  or  extra-budgetary  bodies  and  funds  is  too 
varied. Also, the use of public accounting is constrained by the lack of a common 
European  benchmark  to  support  comparability,  although  many  Member  States 
have shown a greater willingness to modernise their public sector accounting; 

 

the  implementation  of  the  requirement  of  ex-post  forecast  evaluation  has  been 
unsatisfactory,  possibly  related  to  differences  in  interpreting  that  requirement  in 
Directive 2011/85. 

The surveyed stakeholders have in general very positive views on Directive 2011/85. 
There  is  overwhelming  agreement  that  a  strong  domestic  fiscal  framework  effectively 
promotes  fiscal  discipline  and  ensures  compliance  with  EU  fiscal  rules.  Directive 
2011/85 is also considered to have been effective in contributing to the achievement of 
fiscal discipline in line with the SGP. ‘Strengthening ownership’ of fiscal discipline and 
of  EU  fiscal  rules  is  one  of  its  objectives  and  stakeholders  consider  that  Directive 
2011/85  has  been  relatively  effective  in  meeting  it.  This  has  been  almost  entirely  due 
greater  awareness  of  fiscal  discipline  among  policy-makers  while  Directive  2011/85  is 
not  considered  to  have  been  successful  in  raising  awareness  among  the  general  public. 
The stakeholders also see high added-value in having certain minimum EU standards for 
domestic fiscal frameworks and the objectives of Directive 2011/85 continue to be seen 
as relevant. Overall, stakeholders rate Directive 2011/85 as highly suitable.  

Directive  2011/85  has  promoted  a  balanced  and  comprehensive  development  of 
domestic budgetary frameworks. Even if it cannot be directly credited for triggering all 
the  reforms,  as  other  EU-level  law  and  intergovernmental  initiatives  were  taken  in 
parallel  (in  particular  the  TSCG  and  Regulation No 473/2013),  it  has  been  a  major 
contributor to improvements in domestic frameworks across the EU. Unlike those other 
initiatives, which touched  inter alia on specific aspects of the budgetary framework, the 
Directive  introduced  a  set  of  comprehensive  requirements  covering  the  entire  domestic 
77 

 
 
the best results. In  spite  of  many  other 

budgetary  framework,  leading  to  the  overall  balanced  development  of  budgetary 
frameworks  in  all  its  aspects.  Practice  shows  that  fiscal  frameworks  function  as 
connected  systems  and  the  harmonious  development  of,  and  interaction  among, all  its 
components  produce 
factors  shaping 
developments in domestic budgetary frameworks, stakeholders credit Directive 2011/85 
with  a  relatively  high  influence  on  their  national  frameworks.  Even  so,  the  European 
Court  of  Auditors,  after  reviewing  the  EU  provisions  on  national  fiscal  budgetary 
frameworks,  sees  a  need  for  their  further  strengthening  and  better  monitoring.62  In 
contrast to the other initiatives taken in the wake of the crisis to reinforce the EU fiscal 
framework,  Directive  2011/85  did  not  establish  new  substantive  rules  or  enforcement 
mechanisms.  Rather,  it  sought  to  strengthen  the  underlying  domestic  infrastructure  for 
the application of the common fiscal rules, or domestic fiscal policy overall. As such, it 
has largely escaped the controversies about the state of the EU fiscal framework and the 
desirable direction of change, and it appears to enjoy a higher degree of across-the-board 
support than the rest of the framework.  

62  European  Court  of  Auditors  (2019),  “EU  requirements  for  national  budgetary  frameworks:  need  to 

further strengthen them and to better monitor their application. Special Report 22/2019.” 

78 

 
 
  
 
 
                                                           
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5.  ANNEX: STAKEHOLDERS SURVEY 

For  the  purposes  of  this  review,  the  Commission  conducted  surveys  of  the  main 
stakeholders, i.e. the Member States’ finance ministries, national statistical institutes and 
IFIs.  The  internet-based  surveys  contained  factual  questions  on  the  stakeholders’ 
domestic  budgetary  frameworks  and  questions  aimed  at  gauging  their  opinions  on 
various aspects of the Directive. To gain further insights into their views, the preliminary 
results of the surveys were discussed and broadly confirmed with the stakeholders in two 
meetings:  

  a  dedicated  workshop  with  the  finance  ministries  and  the  IFIs  (Brussels,  4  July 

2018); and  

  discussions with the national statistical offices in a meeting of the Sub-Committee 
on Statistics of the Economic and Financial Committee (Brussels, 15 June 2018).  

The surveys were sent out to all 28 finance ministries, 28 IFIs and 28 statistical offices. 
Answers were received from 26 ministries (25 answered the survey on the statistics part 
of Directive 2011/85), 21 IFIs and 26 statistical  offices, i.e. a response ratio of 75-93% 
depending on the survey. The stakeholders workshop was attended by representatives of 
23  ministries  and  20  IFIs,  while  in  the  meeting  of  the  Sub-Committee  on  Statistics  all 
Member States were represented by delegates from their finance ministry and statistical 
office, as per the statutes of the Sub-Committee.   

A  summary  of  the  answers  to  the  main  evaluation  questions  of  the  survey  is  presented 
below. 

Graph  A1.  How  would  you  rate  the 
effectiveness  of  the  provisions  of  the 
respective  sections  in  supporting  fiscal 
discipline in line with the SGP? 

Graph  A2.  The  share  of  respondents 
as 
considering 
complementary  to  other  relevant  EU-
level requirements 

provisions 

Notes: answers range from 1 (very ineffective) to 5 
(very effective). Average is shown. 

81 

 
 
 
 
 
 
Graph A3. What is the value added of 
having certain minimum standards 
across the EU for this section? 

Notes: answers range from 1 (low value added) to 5 
(high value added). Average is shown. 

Graph A4. How would you assess the 
extent of legal and procedural changes in 
relation to this section required in your 
country by the transposition of the 
Directive? 

Graph A5. How would you assess the 
extent to which the transposition of the 
provisions referred to in this section was 
challenging in your country? 

Notes: answers range from 1 (insignificant changes) 
to 5 (significant changes). Average is shown. 

Notes: answers range from 1 (not challenging) to 5 
(very challenging). Average is shown. 

82 

 
 
 
 
 
 
 
 
 
 
 
 
Graph A6. How would you assess the 
extent of changes (e.g. in terms of 
procedures, practices, documents, data, 
etc.) in relation to this section required 
by the implementation of the Directive in 
your country? 

Graph A7. How would you rate the 
difficulty to implement in your country 
the provisions referred to in this section? 

Notes: answers range from 1 (insignificant changes) 
to 5 (significant changes). Average is shown. 

Notes: answers range from 1 (not difficult) to 5 
(very effective). Average is shown. 

Graph A8. To what extent has the Directive been effective in contributing to… 

Notes: answers range from 1 (very ineffective) to 5 (very effective). Average is shown. 

83 

 
 
 
 
 
 
 
 
 
 
 
Graph A9. Is a strong domestic fiscal 
framework an effective method to 
promote fiscal discipline and ensure 
compliance with the EU fiscal rules?  

Graph A10. Are the objectives of the 
Directive still relevant? 

Note: answers range from 1 (very ineffective) to 5 
(very effective). 

Note: answers range from 1 (not relevant) to 5 (very 
relevant). 

Graph A11. What is the value added of 
having certain minimum standards 
across the EU for domestic fiscal 
frameworks? 

Graph A12. How would you rate the 
extent to which the Directive has 
influenced the development of your 
country's fiscal framework? 

Note: answers range from 1 (low value added) to 5 
(high value added). 

Note: answers range from 1 (no influence) to 5 (has 
influenced very much). 

84 

 
 
 
 
 
 
 
 
 
 
 
Graph A13. Overall, how would you 
assess the suitability of the provisions in 
the Directive?  

Note: answers range from 1 (not suitable) to 5 (very 
suitable). 

85