The debate over the European Union’s debt and deficit rules will reignite north-south tensions in 2022 and will be crucial for the pace of fiscal consolidation after the pandemic. Looser fiscal rules could promote growth but open the door to new debt crises, while tighter rules could lead to social unrest and political upheavals in southern Europe. On Oct. 19, the European Commission formally launched the process to reform the bloc’s Stability and Growth Pact (SGP), which establishes sovereign debt and fiscal deficit limits for member states. EU officials will hold conversations with national governments and civil society organizations for several months, with the goal of implementing the new rules in 2023. In a press conference, European Commission Vice President Valdis Dombrovskis said that fiscal rules should not constrain economic growth, and that the new rules will be applied “in a gradual, sustained and growth-friendly way."...
