The fiscal response had to rely on both national and supra-national policy actions of significant magnitude. In the current high inflation setting, however, the appropriate policy mix requires a tightening of the monetary policy stance and a fiscal stance that, at the aggregate, euro area level, is not at odds with this anti-inflationary stance. This means that government support measures should be temporary, targeted and tailored to preserving incentives to consume less energy. 1  In particular, measures should be gradually rolled back as energy prices fall. Otherwise, we are at risk of driving up medium-term inflationary pressures, which would call for a stronger monetary policy response. In this regard, let me stress that achieving a fiscal stance that is consistent with the smooth operation of the Economic and Monetary Union (EMU) while delivering sustainable public finances is precisely the role of the EU’s fiscal rules framework, or at least its key aspiration. Why do we need fiscal rules? Let me be straightforward in stating upfront that a disciplined fiscal framework that fosters the sustainability of public finances is essential to guaranteeing macroeconomic stability and the proper functioning of the EMU. Under the Maastricht Treaty, the design of the EMU rested on two pillars: a single monetary policy authority and a set of coordinated national fiscal policies, which constituted the EMU’s policy mix. The independent central bank (ECB) targeting price stability was entrusted with monetary policy.

The Commission’s proposal improves automaticity to some degree. That is, the excessive deficit procedure (EDP) for breaches of the debt criterion (the so-called “debt-based EDP”) would be strengthened such that departures from the agreed spending path would automatically trigger the opening of an EDP whenever the Member States face a substantial public debt challenge or the departures from the agreed spending rule give rise to so-called “gross errors”. Meanwhile, the EDP would remain unchanged for breaches of the 3% of GDP deficit reference value and the new framework would strengthen compliance by introducing new reputational sanctions. But the effective application remains to be seen. We need to remain particularly vigilant on these factors, which have contributed to the failure of past reforms. In this case, an enhanced role for independent fiscal institutions should be envisaged. History and practice have shown that well-designed independent fiscal councils can enhance the accuracy of fiscal forecasts and improve compliance with fiscal rules.8 Therefore, the reform should encourage the strengthening of independent fiscal institutions, with the final objective of giving them a formal role on the assessment of compliance with the fiscal framework. Another key aspect is simplicity, while preserving a sense of realism. An overly complex and non-transparent framework hinders the effectiveness of the rules. Moreover, a simpler fiscal objective increases the credibility of the rules and strengthens their governance. In this sense, the reform proposal by the Commission suggests a simple expenditure rule together with a sustainability anchor, based on a debt sustainability analysis framework.