James O'Connor (Cork East, Fianna Fail)
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77. To ask the Minister for Finance his plans to review the fiscal compact deficit spending targets if the next generation of EU funding proves inadequate to meet the societal needs of future-proofing the European economy with alternative European-level funding mechanisms (details supplied); and if he will make a statement on the matter. [17178/21]

Paschal Donohoe (Dublin Central, Fine Gael)
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The EU’s fiscal rules have been an integral part of our own fiscal framework for a number of decades, dating back to the adoption of the Stability and Growth Pact (SGP) in 1997. Alongside a number of reforms to these rules since their inception, the Fiscal Compact was introduced in 2013, with the aim of strengthening fiscal governance and reinforcing the SGP. The Fiscal Compact represents one section of the Treaty on Stability, Coordination and Governance, which is an intergovernmental treaty that exists outside of the Stability and Growth Pact. As such, any reform of the Fiscal Compact would not automatically alter the existing rules under the Pact.

As regards the current application of the EU's fiscal rules, in March 2020, following the onset of the Covid-19 pandemic, the general escape clause of the Stability and Growth Pact was activated. The clause allows for a temporary departure from the normal operation of the fiscal rules in a situation where there is a severe economic downturn in the EU. This clause has suspended the regular fiscal requirements in 2020 and 2021.

A Communication from the European Commission in March set out their framework for assessing the conditions required in the EU for the clause to be deactivated. This framework suggests a return to pre-crisis levels of economic activity in the EU should be achieved before the deactivation of the clause. Based on the Commission’s own 2021 winter forecast, EU GDP is not expected to reach its 2019 level until the middle of 2022. As such, it is expected that the general escape clause will continue to be in place in 2022.

As regards the broader question of reform of the EU fiscal rules, early last year, the Commission opened a formal review of the legislative packages known as the Six- and Two-pack, including the launch of a public consultation on the operation of the fiscal rules. Discussions around this review were paused because of the pandemic, with the public consultation suspended. I welcome the confirmation by the Commission in their recent Communication that they intend to relaunch the public debate on the fiscal framework when the recovery takes hold. My officials and I will actively engage in these discussions. In particular, I support efforts to enhance the transparency, predictability and simplicity of the rules. However, it must be recognised that there are difficult trade-offs involved. This means that finding agreement will be challenging.