29/09/2025 11:00:00

Deputy Governor Demarco participates in Bruegel event

Deputy Governor Alexander Demarco was a participant in a panel discussion in an event to celebrate Bruegel's 20th anniversary, that was jointly organised by Malta's Ministry for Finance. The theme of the event held on 22 September 2025 in Valletta was "From rules to resilience: The Relevance of EU Fiscal Governance".

The panel discussion involving the Deputy Governor covered the theme "Fiscal rules: Old rules for new challenges". In his intervention, Mr Demarco argued that the new EU fiscal framework is a step in the right direction in making it simpler and more efficient in terms of better properties for the use of fiscal policy in macroeconomic stabilisation, but it is still early days to assess whether the framework will achieve the objective of improving compliance by Member States. He referred to European Commission data on fiscal compliance which showed that in 2024, member states categorised as medium and high risk in terms of debt sustainability recorded lower compliance, especially in respect of the expenditure benchmark, which is the key metric under the new framework.

The challenges for the framework essentially stem from the tension between the need for rules to prevent fiscal irresponsibility and free riding in a Monetary Union without a Fiscal Union, and discretion to cater for heterogeneity in economic and fiscal conditions across Member States. He argued that rules are necessary to provide a clear anchor to enhance transparency and reduce uncertainty, but some flexibility is needed to cater for differences across countries, although he warned that too much discretion would undermine the credibility of the framework. The new framework will also be tested for the first time on fiscal outcomes for 2025, in a world where the US administration has brought profound changes to address its own fiscal realities as over the past six years annual fiscal deficits in the US, at 8.1% of GDP, were more than double those registered in the EU, and the increase in public debt to 122% of GDP, was around three times higher than that experienced by the EU.

Mr Demarco concluded that while the new framework incorporates flexibility to cater for the new geo-political reality, it also needs to be strengthened to take account of the significant investment needs highlighted in the Draghi report and suggested that the creation of a central fiscal capacity, with more issuance of common debt, is an avenue that could be better exploited.

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