with flaws that can be fixed ”, realtime economics blog, peterson institute for international economics, 30 november 2022 ; and wyplosz, c. ( 2022 ). “ reform of the stability and growth pact : the commission ’ s proposal could be a missed opportunity ”, voxeu column, 17 november 2022. second, the fiscal rules must be able to avoid the traditional pro - cyclical behaviour of public finances. ideally, fiscal rules should foster savings during expansions and support growth during recessions. clearly, the existing framework has not been able to do so, contributing to the undesirable increase in public debt levels that we have seen. it would therefore be desirable for the new framework to incorporate a clear incentive scheme to boost efforts to consolidate public finances when the economy is doing well, so as to provide room for manoeuvre in times of crisis. it should combine positive incentives such as allowing countries to design the fiscal consolidation path - and negative ones – like an improved regime of sanctions, including restrictions on the access to eu funds. third, greater compliance can be achieved with rules that are more automatic. 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

important firm and of a coordinated resolution process. is there an opportunity between those two stages to intervene more forcefully, but not incur the potential asset markdowns and administrative costs of resolution? considerable interest has been expressed in developing a “ bail - in ” mechanism to provide that intermediate step. let me comment by stressing that what i am expressing is strictly my own view. and let me start by saying that a bail - in mechanism cannot substitute for the national resolution tools and resolution planning called for by the cbrg. there must be a last stop where systemically firms can be resolved, because we will inevitably need it and we must work to make cross - border resolution possible at acceptable cost. where can bail - in fit? i ’ ve described a process in which supervisors deal first with a troubled financial firm by encouraging its board of directors and management to activate its recovery plan and develop a private restructuring. in my personal view, the possibility of a restructuring prior to insolvency with potentially more forceful outside supervisory or contractual intervention is interesting and deserves more study. given the number and range of stakeholders in a large financial company, such a mechanism could help solve a coordination problem that can be costly in terms of time and sub - optimal in terms of ensuring the equitable treatment of stakeholders for a financial company on the threshold of, or in, distress. however, bail - in is not yet a well - defined concept in the international policy discussion ; i ’ m not sure how my description of a mechanism resonates with the overall discussion. right now, the common theme of a set of bail - in concepts is putting in place a statutory or contractual trigger that would convert a firm's debt into equity, thereby immediately strengthening the firm's capital base. short - term debt and liabilities would likely be excluded. to move the bail - in mechanism from concept to a meaningful proposal, the official community needs to develop one or more specific proposals that can be vetted, debated and improved. in that spirit, let me list some areas in which a bail - in proposal needs to be more specific. a proposal needs to make clear : the nature of the trigger. is it contractual or supervisory? is it rule - based and if supervisory, rule - based or discretionary? the desired capital structure before a bail - in. consonant with the work in basel on capital and liquidity requirements, how much bail - in eligible debt should the firm have? to answer that requires specifying goals for