As of March 2020, at the outbreak of the Covid-19 pandemic, the fiscal rules of the European Economic and Monetary Union were suspended until 2023. Should their reactivation be accompanied by some kind of reform? Disagreement, especially at political level, looms large. We argue that the existing fiscal regulation of the EMU is the product of the cultural and political climate that prevailed in the 1980s and 1990s, when confidence in the self-regulative capacity of markets was unlimited, the need for, and effectiveness of, active fiscal policies was deemed limited if not harmful, and monetary policy was seen as a universal panacea for (residual) stabilisation purposes. The subsequent three decades have been characterised by a sequence of global-scale crises with profound economic, social and political consequences that have subverted those beliefs. Any reform of the regulatory system of public finance in the EMU must take account of the changed circumstances. We also argue that the reform should go beyond the technical restyling of fiscal rules. Renewed fiscal rules should rest on renewed political-economic pillars. The first is the transition from “horizontal” to “vertical” co-ordination. The second is a clear separation of tasks and roles between technical evaluation and political responsibilities. Relying on these pillars, we subscribe to two new rules aimed at granting sustainable public finances of member countries. One shifts the focus from annual budgets to medium-long-term debt sustainability. The other introduces primary spending controls, with macro-stabilisation and public investment safeguards.

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