Professor Ivo Arnold discusses the European Budgetary Rules

Ivo Arnold, Vice Dean and Professor of Economic Education at Erasmus School of Economics
Erasmus School of Economics

Yesterday, the general elections were held in the Netherlands. During the past few weeks, the political parties discussed on a wide range of topics such as stable livelihood and the housing market. Ivo Arnold, Professor of Monetary Economics at Erasmus School of Economics, is discontent at the lack of discussion on the European Union during the general elections.  

Therefore, the Professor wrote an opinion column on the European budgetary rules in the Nederlands Dagblad (18 November).

European budgetary rules

When the Euro was first introduced, the Eurozone countries agreed to keep the governments’ deficits below 3%, and the total government debt below 60% of a country's GDP.

These rules regarding budgetary discipline are necessary, according to the Professor, to prevent the European Central Bank (ECB) from being put under pressure to sustain low interest rates. Indeed, he notes, a low interest rate allows for easier financing of state debt. Yet, a high interest rate is sometimes also necessary to tackle inflation. High government debt levels may thus put the ECB under pressure in their decision to change the interest rate.

(Lack of) budgetary discipline

However, the budgetary rules have never been properly complied with, according to Arnold. What’s more, the rules were set aside completely during the COVID-19 pandemic. The Professor thereby notes a trend in which member states became used to high deficits, since they expect the ECB to intervene if financial markets lose confidence.

Another trend the Professor notes, is an increasing call to allocate more money via the European budget. In the article, Professor discusses and refutes two arguments for this call.

Finally, Arnold warns for the potential negative consequences of pumping around European money. In line with this, he stresses the importance of stimulating the resilience of Eurozone countries, the encouraging more sustainable public finances, and thereby improve the competitiveness of their economies.

More information

For the whole item by the Nederlands Dagblad (18 November 2023), click here.

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