 The title for the panel is New Policy Challenges and Reform Needs for the EMU. So, I think a good way to spend the first part of this panel is essentially to ask each of the speakers. I think most people have some slides to show to give their views on this topic of New Policy Challenges and Reform Needs. So, of course, when we've been discussing this topic, some of the issues that come up, and each speaker will focus more or less on different dimensions, is of course, you know, the topic of the month is the EU Economic Governance Review and Reforms with Stability and Growth Pact. More generally, of course, throughout these years, we initially had a whole wave of work about the implications of below-target inflation for fiscal policy, and then more recently the implications of above-target inflation for fiscal policy. You know, it also interconnects with the Governance Review, but there is a more general topic which is global about the sustainability of public finances, and indeed for that matter, the sustainability of private sector finances. Now, no discussion of this topic would be complete without also extending the discussion to include ESM reform, and of course, we should all be learning from a major innovation during the pandemic, the next-generation EU initiative, which is really a new level of fiscal governance in Europe. So, the format to repeat is I'll ask each of the speakers to make some opening remarks around these topics. Then we'll have a set of second round questions for each panelist, and then we'll be able to move to Q&A from the floor. So, with that, I'm not going to try to introduce all the speakers, they're all very well known, but I think we have a good mix in terms of the composition of this panel, and in alphabetical order the first panelist is Sylvia, so over to you, Sylvia. Thank you very much, Phil, and thank you for inviting me to this excellent conference and to participate to this panel. Now, we have, I think, seven minutes for our introductory remarks, so I've decided to tackle two questions today. So, first, the first question is that I will take a look at history, and I will simply update some of the literatures that ask the how can countries successfully restore sound fiscal policies. And the second, I will look at the future and ask whether high-depth euro area countries are on track for success. Now, after this morning talk by Roberto, you might be, I would say tempted to just switch off right away, but I hope you can stay with me for five minutes. And at the end, I will share you a few thoughts on this literature in general. But for the time being, I will just, given the time constraint, highlight a few stylized facts. I will discuss some ingredients for success, almost in a cooking recipe format. Without any discussion of the wise nor any attempt to address the shortcomings, the criticism that this literature has faced and will continue to face. After all, I say research is incremental, and so I think we all learn from an open intellectual debate on this. Now, what do I mean for success? I will basically concentrate on cases and episodes where governments have been successful at reducing public debt to GDP ratios in a permanent way. So, before showing you the ingredient for success, let me put it in a funny way, I would say, let me show you a couple of facts. Fact number one, if you look across a sample of 21 OECD countries from 1960 till 2019, you can use a particular rule, but there are many similar rules and just identify a number of episodes of large, multi-annual fiscal consolidations. In this exercise, I just point out to 52 of those. Among these, only about 40% of the cases were successfully at reducing permanently over a number of years, meaning, and substantially, more at least than 5% of GDP, the debt to GDP ratios. In other cases, as you can see, the distribution is very wide, debt to GDP increased. Now, you can, staying away from definition, you can also look at this sample, episodes in which debt to GDP ratio declined substantially over a number of subsequent years. That's the distribution to the left. And then you can see that in terms of changes to the cyclically adjusted primary balance, again, you can have a variety of outcome. It doesn't seem that public debt reduction episodes did necessarily require large fiscal adjustments year after years. The third fact that I want to just highlight is that the macro outcomes were very different in so-called successful and unsuccessful episodes. And you get a variety of outcomes, both in terms of here, you can see growth distributions and inflation distributions across these different two sets of aspects that I picked. You can see that in the left-hand side, you have the distribution of real GDP growth, and you can see that successful versus unsuccessful, different in terms of growth outcomes with long tails of the distributions in both cases. But certainly it seems that on average, and if you do some statistical tests, these distributions are different. The growth outlook was better in successful episodes than in unsuccessful ones. Obviously, these are just correlations, right? Maybe for other reasons, not because there were, you know, fiscal adjustments ongoing, growth might have been higher and that might have contributed to lower debt to GDP ratios. We don't know at this stage, but clearly there are, you know, successes that are associated with better growth distributions and more benign inflation outcomes. Now, let me turn to, you know, what again, I can joke and say the key ingredients for success or the road to success. I mean, there is a slide also on initial fiscal position, but I would say it's there are the differences are less striking. Here I will just, you know, basically look at the difference between the size of this reduction deficit reduction and the composition in terms of the size. If you look both cumulatively over these episodes, if you look at the average over the years, yes, there seems to be that on average in the successful episodes. The size of the adjustment was slightly smaller and was spread over a number of a longer time of period. But again, if you do any statistical test on these averages, you don't find much of a difference. Instead, if you look at the bottom two panels and you look at the composition, both on spending and tax items, you find some differences on average. And if I plot the distribution, some of distributions are also statistically significant, statistically significantly different. Now, the chart on the left looks at different taxes. Here we have changes in taxes on labor, taxes on businesses and indirect taxes. Now, you can see that in the unsuccessful, you know, sample, the majority of the tax increases were labor taxes and indirect taxes. Very little was done on business taxes. The opposite happened in the other two cases. If you look on the spending side, here on average, you can see that in success, one sample, you have that basically both social benefits, government consumption and public investment were cut more or less by similar amounts, even though public investment by less than the other two items. If you look at the unsuccessful sample, you can see that it was basically big cuts to government consumption and big cuts to government investment. Not much was done or seems to show on average to the public benefits, social benefits. But one interesting feature is really, you know, what happens to interest rate expenses. In particular, it's obviously, you know, by definitions, if there's success, they reduce the stock of debt, so the interest rate expenses fall. But this can also show, and I think later charts that I will show you later, that perhaps risk premium compressed much more when you were successful. Now, another important ingredient that this literature has highlighted is the, well, I'll get back to, is the differences in the fiscal policy mix. I mean, these fiscal adjustments rarely happen in isolation. I mean, they happened when the situation was not great, and they were often associated also with other policies that were happening at the same time. Now, if you look at the changes on average of nominal short-term rates, real short-term rates, same for long-term rates, I think one interesting feature is that you can see that long-term rates, both nominal and real, decline much more than short-term rates. And if you plot the distribution of short of long-term real and nominal rates, they are statistically different. The second types of policies are, you know, I took an indicator of product market liberalization, and it seems that in the successful episodes, you know, on average, there was a larger decline in regulation. Now, so to conclude, I would say that if you really want to treat this as a sort of like, you know, cooking recipe, right? Obviously, the literature is much more, you know, articulated than this. And I would say that two key message for those who want to do research more and more on this area is that one, I mean, the composition of fiscal policy is important. I think we heard, you know, again, it's simplistic, I would say, to just speak about, you know, maybe very generally about spending or changes or tax changes without looking more in detail into it. But definitely I've done work using many different rules, many different definitions, cutting the data in many different ways. And I think one message is that, you know, not just look at the size, but also look at how, you know, successful versus unsuccessful episodes different could be important. Second, obviously, given how, you know, how the tales of the distributions are long, this is, I think, a literature where really studying in detail very single episodes could be quite important. And the other point is that the policy mix is also very relevant. Now, let me go very quickly from the past, I would say, to the future. And let me just, you know, look at what is happening in the euro area and what budget plan would basically suggest. I mean, one key, I would say, questions that we always get asked is whether, you know, public debt stabilization is not challenging for the coming years. And again, given the growth outlook and the increase in interest rate expenses, I think it would be quite optimistic to think that public debt to GDP ratios in high debt countries can decline without some sort of like fiscal adjustments. If we look at what is happening within the euro area and in the budget of the various countries, I mean, just focusing, for example, on the major EU for countries that is very little for the years to come in terms of proper underlining fiscal adjustment, but the deficit are likely to decline by countries not renewing and stopping energy subsidies measures that have been undertaken in the past few years. Last but not least, and this goes a little bit to try to look at, you know, the composition and getting back to something that was highlighted this morning. I mean, if we look at the changes in the labor taxes versus business taxes, it seems that for the next two years countries have in their plans more increases in labor taxes than increases in business taxes. So based on history, this is the half the glass of empty. But if you look at the government wage bill on the first phase, you can be awful. It seems that, you know, countries put in their in their budget cuts to the spending items. But the reality is, as someone was mentioning this morning, I mean, Roberto mentioned, sorry, this, this spending cuts episodes are not very frequent. And I think it's interesting to think that I mean, I know, for example, in the case of Italy, public sector wage bill still has to increase. We know that, you know, public sector employees are not fired. We know that they could retire, but obviously that would imply an increase in pension spending, which we don't see in in the budget draft. My last, my last point is that at least, you know, with the NGU data, at least based on budget plans, you know, public investment seems to be safeguarded, at least on on paper. And so the majority of countries in the coming two years are not planning any major cut into a government fix capital formation. Perhaps I'll stop here. Thanks. Thank you, Sylvia. I mean, I'm not sure if it's in your, your collection of episodes with my memory from the fiscal consolidations in the Troika countries. While the long-term interest rate was very important was basically the replacement of market funding with official funding at cheap interest rates plates some role there. But we may come back to that in the discussion. So let me move to role. Thank you, Philip. Thanks for having me here. Let me start by looking at this figure from the EFB annual report of this year. And if we look at this figure, we see net expenditure growth. And if we look at the very high debt countries, these are the countries with 90% or more debt as a ratio of GDP. And we see that moving from 20 to 21, we observe that actually net expenditure growth falls. But if we exclude temporary measures, so like Corona measures, then actually we see that it increases and it increases beyond medium term potential growth. So what we've been pointing out is that underlying expenditures are not very favorable in that respect. So I think it's important that governments agree on the reform. And if that does not happen, then of course the old rules will apply, but the old rules, they did not prove very effective in getting countries to be disciplined. So, well, I'm at some distance, of course, to what is going on in the negotiations. So let's see what comes out of it. I think that, you know, the commission had, I think the in November last year they had, I think a very good, like you say, you know, proposals and then there was of course the legal proposal in in April this year. But a number of elements was still unclear. And so, for example, in that proposal, the so-called compensation account was unclear. And I think now looking at the most recent documents, the compromise documents, so to say, by the Spanish presidency, there is, you know, these details have been filled in. But with, you know, moving from the original proposal to what it now looks like, of course there is also, you know, a lot of complexity is added. And the question is whether this additional complexity, whether that, you know, is helpful in terms of credibility of the system. And I think that is key. Enforcement is key in the end. And for the revised stability and growth pact that, you know, it is important, I think, to, you know, to apply this enforcement early on, even if this is only through very, very small fines. Then, as I was saying, things have become quite complicated, I think, in the latest documents. So, you know, and then the question is, you know, when an EDP is opened, what is the role of all the other relevant factors, etc. Let me move on. So, there are a couple of worries or points that were made by the European fiscal board. One is there's the possibility for countries, so they get, in principle, they get a four-year adjustment period, but this could be extended to up to a maximum of seven years. And this could be done then, you know, would be on the basis of investments and reforms that fulfill certain conditions. Now, the question is whether this, you know, might also not, in a way, water down the enforcement based on the numerical criteria. So, how will those investments and reforms be treated when there is a danger of a debt-based excessive deficit procedure? One of the omissions in the proposed revision of the system is that there is no central fiscal capacity, and in particular to finance public goods, European public goods, you know, common investments. So, there have been also proposals for green, golden rules. We are skeptical about this because of the danger of greenwashing, but also because if you want to assess sustainability, you will do that on the complete budget. And as European fiscal board, we also made some, you know, proposals for, say, alternative. And here I, quite recently, I wrote a proposal with Aage Bakker, former executive director at IMF, where we propose an EU fund dedicated to investments with cross-border benefits. And each country would have an envelope within the fund that, as EFB, we have proposed similar solutions in our annual reports. Now, conditional adherence to the fiscal rules then countries would be able to draw resources from the fund for investments. But those investments should have positive externalities across borders. And if countries would fail to come up with good plans or adhere to the fiscal rules, then the remainder in their envelope would be redistributed over the other envelopes. So such a fund, and it would really be a fund, it would not be in the EU budget because the EU budget would be kind of a status quo and countries would, you know, some countries would feel that, you know, you would never be able to shrink the budget. So, but such a type of fund, you know, could have the, you know, the role of a central fiscal capacity and it would have two benefits. It would have an incentive, would provide for an incentive for this fiscal discipline because countries would need to adhere to the rules to make use of the resources and it would encourage investments with a public good character. So, in any case, it's important, we believe that it's important that, you know, countries will think about central fiscal capacity, even though at the current moment it's not, you know, the political climate is not very favorable for that, at least on some sites of the EU. There's one last thing I want to discuss. So I was talking about public investments, but I think also, you know, this is the importance of private investments. It is a huge need for investments in digital transition, but also in the energy transition. And if we look further ahead, then, you know, with the increase in the fraction of retirees in the population, you would, I would expect that aggregate savings will fall and so there would be, basically, there would be fewer savings for more investment needs. And so it's very important that the Capital Markets Union gets completed. The Capital Markets Union is, of course, it's complicated because it consists of many, many, you know, in a way smaller items, but it is essential because savings, potentially a decrease in savings, would need to be channeled to those places where they contribute most. So let me stop here at the end, actually. Thank you all. And let me hand over to Valdus. Yes, thank you, Philippe, and thank you for the invitation to this conference. Well, first of all, obviously, we need to tackle the short-term challenges which we are facing in a context of post-COVID pandemic and Russia's war in Ukraine, and as a result, European economic slowdown. But at the same time, it's also clear that euro area economy is facing a number of structural challenges, low productivity growth, population aging, changing and more conflictual geopolitical context, the twin transitions, green and digital transition. And with all that, potential growth is expected to fall. So we expect euro areas, potential output growth rate to fall back from around 1.4% over the next two years to an average rate of nearly 1% over the medium term. So we need to address our structural challenges to bring growth back to a higher level and improve the resilience of the euro area. And in this we see four main priority areas of work for the Economic and Monetary Union, support, productivity enhancing investments and structural reforms, assert our open strategic autonomy while staying open to trade and for investment, complete the banking union and further deepen the capital markets union, and continue with sound macroeconomic policies. So let me go through those topics. So first on supporting investments and reforms. It's very clear tackling the structural challenges in a durable manner will need both investments and structural reforms. And next generation EU and specifically recovery and resilience facility are a powerful new instruments to do this, especially in key EU priority areas. So European Commission simulations indicates that impact of fiscal and public investment supported by next generation EU could increase EU GDP by up to 1.5% during the years of next generation EU active implementation. And if it's coupled with reforms in market competition and regulation, taxation, skills and education, labor markets, research and developments, they could raise EU's GDP by around 2% in five years and 8% in 20 years. And in the context where higher rates are affecting debt sustainability, next generation EU has provided a respite for public finances and supported growth, especially in member states which have more limited fiscal space. And it's also boosting confidence in the Euro area, which itself is a positive impact on financing conditions. On the second point on open strategic autonomy with more security and geopolitical risks, the EU needs to defend its interest. At the same time, we need to remain open to trade and foreign investment because trade provides for new markets and economies of scales. It gives companies access to best inputs and most advanced technologies and allows EU companies to diversify their sources of supply. And it's worth noting that in the next decade, 90% of global growth will take place outside the EU. So we need to be connected to this outside source of economic growth and use opportunities is provided. So trade and investment are key for connecting Europe to these sources of productivity and GDP growth in medium to long term. So it's clear that in a sense we cannot turn inwards because then we'll be locking ourselves out of those opportunities. Well, on banking union, capital markets union, I think that's a topic which is much discussed and well known. But those are remaining core pillars of the Commission's Economic and Monetary Union agenda. And the investments that will require to boost our growth potential will have to come primarily from private sector. The amounts are very sizable for public sector to cover it. So ensuring sufficient capacity of the private sector will require movement with the banking union and capital markets union. Actually, it's a most cost effective step we can take. And this will unlock growth potential by promoting also cross border capital flows and more efficient allocation of resources. Then on sound macroeconomic policies, the public sector obviously can also improve the resilience of EMU by providing EU public goods, delivering the appropriate level of macroeconomic stabilization and ensuring depth sustainability. So indeed, also today we heard discussions about central fiscal capacity as means of directly financing EU public goods. Well, at this stage, the multi annual financial framework and next generation EU for fulfills this role for years to come. As I was just mentioning, and it was actually major step for member states to take. Well, the jump to a permanent centralized fiscal capacity would be more controversial. However, we know that a number of member states agreed to the next generation EU clearly on a condition that it's a one of instrument. So clearly, this will require further discussions on what comes on the next financing cycle. But in the meantime, the most urgent is now to agree on the reform of EU fiscal rules. Again, there has been already discussions of European Commission's proposal in this regard. So basically what we aim is to increase national ownership is more tailor made fiscal adjustment pass, give more granular realistic but steadier reduction in depth levels and boost investments and reforms through the incentive of lower annual adjustment for member states committing to gross enhancing reforms and investments. So this should go a long way to help governments to better prioritize spending in the direction of EU common priorities and improve the quality and composition of public finances. Well, these improvements will be needed because very high public debt levels remain a source of concern in the EU, in the context of EMU and public debt challenges have certainly increased in recent years due to fiscal response to COVID-19 pandemic and energy crisis and the following increase in interest rates. And there are also structural trends which will wait on public finances like population aging, less benign differential between nominal growth and interest rates and large additional investment needs in the context of green and digital transitions. So we urgently need to make progress on the new EU fiscal rules and considerable effort has been made on this and I believe that we are close to finalization of this. The Spanish presidency has convened an ad hoc ecofin video conference for 20th of December in two days so hopefully we can finalize those discussions there. So to conclude the EMU needs to become more resilient, which means increasing potential growth, keeping public finances under control and further strengthening the institutional architecture. Thank you. Thank you very wide ranging and that will come back to a lot of us in the discussion but let me turn to Jeremy. Great, thank you. Thank you so much for inviting me. So I thought I could most usefully use my seven minutes to give you a sense of where the fiscal governance review stands as far as I'm aware. And what I and my coauthors who have been doing work on this for about the last half year or so, where we, you know, what we think of it. And so to remind you of the original idea, this is going to be was supposed to be very different from the existing set of fiscal rules. It was supposed to be a risk based country specific system based on the European Commission's that sustainability analysis which has a probabilistic element like Olivier mentioned and of course the 3% benchmark deficit cap because that's in the treaty we can do nothing about that. There's also importantly the idea that investment is encouraged reforms are encouraged and depending on the quality of your investment reforms plans you may get an additional three years to adjust your finances to the level that would meet the DSA and the 3% requirements. There's a little bit of a restriction on your speed of adjustment within the seven year period but not a very heavy restriction. So it basically was a very flexible system. Very much country specific very DSA based and the main argument for this is that because our enforcement limits are so tight. The fiscal area in the EU, the fiscal area being as far as I know the only area that is explicitly taken off the table for the purposes of implying the treaty infringement procedure which is our usual way of enforcing EU rules and fines not really being plausible in a peer group. There isn't very much we can do on the enforcement side. So if we want to improve compliance, it has to be by making essentially countries voluntarily do the right thing and we're not going to make them do the right thing if we impose a system of rules to them that make no sense for their specific economic case. That's the argument for the ownership argument for the proposed reform. And then there's the idea that the reform should also contain incentives for structural reform that includes its growth. So it's not just about austerity. It's also about about the denominator of the debt to GDP ratio. And finally, of course, the nice thing about having a seven year adjustment period is that it makes adjustments from very large deficit positions, which is what we have today in about half dozen countries feasible. So a whole lot of good things about about this plan. Now, the main worry main objection to the plan which I shared when it came out is that this gives the Commission a lot of discretion and such potential rooms for political games or for, you know, sub being subjected to political pressure and the reason for that is that only the Commission really understands their just that sustainability analysis and in that sense, maybe risk question can be abused in a system that's mainly a base. And so this then led to this demand for the so called safeguards which are essentially back to the old system simple rules of adjustment. The Commission themselves proposed such safeguards in the April legislative proposal that we introduced at the last minute, mostly I think in response to German pressure. They were not very well designed in the April proposal we published sort of some of the more weird implications of these safeguards in the paper in September and since then, essentially the Council has been negotiating these safeguards in a way that would both sides so give the conservative half of Europe some some solace some some comfort while not creating restrictions that would create an unreasonable fiscal adjustment pressure for the other half. And so where we have come down now is is a debt safeguard that dictates a minimum minimum average speed of debt decline of 1% for the high debt countries and of half a percent of GDP per year on average for the countries between 60 and 90% of debts over four years. So this was a great German success. The Commission draft said it should be flat over four years. But in this the important thing, if you are in the excessive deficit procedure, the starting point is shifted until you come out of the GDP. Right. So the main problem of the Commission's original draft was that it is practically unavoidable if you start out with a large deficit to see your debt go up for a while while you're financing this debt visit. So then to require the debt to come down or at least not to be higher after four years at the beginning would have required ridiculous austerity. And so this is the way in which this problem is avoided. So this is based on a Franco-German compromise and you can exactly see where the German bit of the compromises and the French bit of the compromise. So it's a masterful political compromise. Now there's another thing that was introduced much more recently called a debt resilience safeguard. And the idea here is that the plan of the Commission to dictate a return to no more than 3% deficit within four to seven years is not ambitious enough with respect to the deficit benchmark because you really want to aim higher, I mean more ambitious. So that in the 10 years after the adjustment period you have some buffer in case there are bad shocks to not go back over the 3%. And indeed in our September paper we've made some simulations that show that the probability that countries would go back over 3% given the normal uncertainty that underlies also the DSA was quite high. So I don't know whether we planted this idea or not, but now the idea is you shouldn't just go for the 3%, go for a safety margin and in the end the safety margin is one and a half points of GDP. So these are the two main safeguards. Now our take on this discussion is that the worry that there's too much discretion is indeed valid but the post remedy which is to essentially go back to some version of the old system which is based on simple rules could undermine the purpose of the reform. And this is what we want to get away from and so a better approach if you're suspicious of the Commission is open the black box of the DSA, arguably do some reforms, have everyone own it and make it fully transparent then no one can cheat. And so we actually contributed to that by replicating the methodology and people can now download it from our website if they want to and the Commission was extremely collaborative with us. They didn't give us the methodology but we basically spent three months in a trial and error sort of loop. We think you're doing this. Not quite right. Check that part. And this went on for like about 25 iterations and finally we essentially replicated the results and then they stopped telling us to do things differently. But they were very collaborative. I mean exactly what international civil servants are supposed to do. They collaborated within their rules. Okay, now the big point is, even though I disagree with this approach, philosophically, the safeguards approach, it makes a big difference whether you design safeguards in a way that would in some sense obstruct the DSA results or not. Right, so the analogy which I have come to use is that safeguards should be like guardrails on a road. So they shouldn't restrict traffic that should not, you should not bump into them as a car as long as you drive in a civilized manner the way you're supposed to drive. Right, that's the DSA. You're supposed to adjust. You're supposed to drive down that road in a particular manner. Now, if you deviate, you know, if you get drunk, if there's an accident there's a shock and you go, you know, you're about to go off the road, then the safeguards supposed to catch you. Right, so the ex ante safeguards should not be binding. So the question is, at least in the first application, would they be binding? Right. And so these are the implications of the new framework. I'll show you the quantitative results in a second. So the good news is that for the most part, the way the safeguards have not now been designed makes them not binding, not completely, in some cases they are binding in the initial four to seven year adjustment period. So the framework has not completely lost its soul because of these safeguards. That's the good news. Now, the bad news, at least if you are sort of worried that there will be too much austerity is actually the DSA itself is really tough. Much tougher than I expected, much tougher than probably the Germans expected at the beginning. It does require very large adjustments for high debt countries and this has to do with a couple of technical features of the DSA which are debatable. I think they can be justified. They're reasonable, but they are debatable and so that debate probably should happen. The other piece of bad news is that this deficit resilience safeguard basically says if you emerge from the four to seven year adjustment period and you're not yet at a deficit that is, you know, at 1.5 percent or lower, you have to keep going outside the adjustment period. And because you have to keep going in a way that offsets a higher cost of aging that are projected during this period, it makes, in the end, of course, at the same time the higher interest rates that are now in the pipeline are being rolled into the debt stop. You have to keep going quite far in some cases. And so, as I'll show you in a sense, in some countries this leads to absurdly high structural primary balance targets outside the actual adjustment period. And then the final complaint is that the framework is not very friendly to green public investment in the sense that it creates barriers to an investment push even if the investment would be okay from a DSA perspective. So just like rule, I firmly believe that debt is dead. And like my Minister of Finance, Christian Lindner, debt is dead. It has to be repaid, doesn't matter where the debt comes from. But, you know, put it in the DSA, but do not make it subject to these artificial barriers that have no economic justification, right? So, and unfortunately the system would do that. So I have two more slides. They're both about numbers. So this is sort of the summary of the implications of the fiscal framework. So the first three columns are the current sort of the November European Commission forecast for 2024, debt, fiscal balance, structural primary balance. So you see there's a very wide range on the fiscal and the SBB, you know, some countries are way in excess deficits. Other countries like Greece, Portugal, Cyprus, so essentially the former crisis countries that found religion fiscally after the crisis. They are in surpluses or they have very strong positions. Now columns four and five tell you the structural primary balances required by the end of the four or seven year adjustment period according to the rules of the DSA and the 3%. So columns four and five, in a sense you can interpret it, this would have been the result if the Commission had gotten its way in the November proposal. And you see that these are very high numbers in some cases. Italy, over 3%. It's actually primarily over 3%. Remember that sort of the high watermark of structural primary balances requirements was the discussion with with Greece and its official creditors where the Eurogroup in the end settled on 2.3% as sort of the long term structural primary balance target for Greece. This is considerably above that. Spain is in about the same range. Belgium is in about the same range. Portugal is in about the same range. Now for a country like Portugal, it doesn't matter because they're already there and currently agrees. They're actually over above the required structural primary balance in 10 years. Now, why is this so high? The main point, as I said, is that the Commission methodology requires countries to anticipate and offset increasing aging costs over the 10 years after the adjustment period is over. And for most parts, they will go up quite a lot in that. And that is something, for example, that is essentially a judgment call, right? I mean, you can say, well, countries will deal with aging costs in some way when they get there, either by making additional adjustment or through structural reforms. And so, you know, the standard IMF DSA, for example, would not put them in. The Commission follows a tradition that I think comes from the MTO of forcing countries to refinance those aging costs. Now, to be fair, of course, what countries can do is they can come up with a medium term physical structural plan, which is what they're supposed to under the system, where they say, look, Commission, your assumptions about aging costs in our country are all wrong because we actually plan to do such and such reforms on aging over the four to seven year period. Then they would not have to do this austerity, right? So the way to justify this Commission approach is to say that it's a very strong incentive to address aging costs in some way during that, but not necessarily through fiscal adjustment. Okay, so the bottom line is four and five is pretty tough, columns four and five. Now, columns six and seven show you how much these safeguards add, right? And so, whenever there's no highlight, it means that it's the same, so the safeguards are not binding. And then the four cases that I've highlighted, they are binding and then the color says which safeguard is binding. So the debt safeguard is binding only in two cases, Spain and Portugal, Finland, I'm sorry, for the four year period. The deficit safeguard, not surprisingly, is binding in Greece and then Finland in the seven year period and Cyprus in the seven year period. And so that makes quite a big difference, particularly for Greece, right? And also for Finland. Now, the overall impact then on adjustment needs is given in the next two columns. So what I've done here is essentially just subtracted the primary balance targets from columns six and seven from the vice versa, the starting point in column three from the end point and column six and seven and then divided by the number of years. So this shows you sort of the average adjustment that would be required in the first application of the plan. And the bottom line is that if this were a four year period, in many cases it looks unfeasible, right? So Italy over one percent, Belgium over one percent, France close to point nine. But once you move to the seven year period, the seven year period does what it's supposed to do, namely to bring down the average adjustment to perhaps more feasible level. So for the most part there in the order of, you know, between point two and point five, and then we have a few cases that are slightly higher Italy and Belgium. Then finally the ten, so basically the overall verdict is based on column nine is that this doesn't look completely absurd, right? It's going to be tough adjustment over a substantial period, but it does not look unfeasible to me. And of course, if you buy the DSA, you would say in most cases this is necessary. In some cases there's an unnecessary element piled on top which comes from the safeguards. Now the final two columns give you the yellow shaded stuff denotes cases where in order to reach this final target of getting deficits durably below one point five percent, countries have to do even more than they have to do within those four to seven years. And so that gives an additional adjustment need in the cases of Greece, Italy, France, Spain for the seven year period and Belgium. Now in most cases it's not a whole lot more than they need to do within the adjustment period, but there are two exceptions and that's Italy and France. So in Italy if they get the seven year extension, which for sure they will get, then in principle they would have to after this seven year period continue raising their surpluses until they get to over five percent structural primary balance, which seems implausible to me. For France they are in a more plausible range, 2.2 to 2.6, but it's much more than they have to do within the adjustment period. So again the plausibility of this is unclear. So it is in my view countries who agree to this reform basically maybe they agree to the first part of the reform, the first four to seven years in good faith. I cannot imagine that any you know France or Italy would agree to this extended period of austerity beyond the four to seven year period. Okay the final point you cannot really see much of the slide. The point of the slide is to show you the debt and deficit consequences of a temporary rise in investment during the seven year adjustment period. So this is an experiment where countries would raise investment by 0.5 percent of GDP beyond current projections over six years. At the same time they would raise their structural primary balance at the end of the seven year period to ensure that both the DSA requirements, the 3 percent reference, and indeed even the deficit resilience safeguards are met. And so the main insight here is that between the baseline scenario which is the continuous line and the dotted scenario which is the investment experiment. And so the blue lines is the debt path. So just look at the debt path of the broken blue line and compare it to the solid blue line. There is a very small difference. So from the point of debt sustainability this type of strategy makes almost no, not from the point of debt sustainability, from the point of debt decline. If you really what you want is debt decline. You're taking the treaty very literally. You could not object to this. Neither could you object to this by construction if you worry about debt sustainability because that's how we have cooked these numbers. They satisfy all the debt sustainability requirements. Yet you could not do this under the current plan. And the reason why you couldn't do this experiment is because by definition it would violate the so-called no-backloading condition under the compromise because you start with a combination of steady fiscal adjustment in the non-investment budget but then the investment budget has a high deficit. And then you take it back right at the end. So it looks like there's back-loading of fiscal adjustment. It violates the no-backloading condition. And of course in some cases the debt decline is delayed and so the debt safeguard is also violated. And this is sort of what really bothers me about the current approach. There could be a very easy way of dealing with this. And it was not done. Thank you Chairman. So we've covered a huge range of timelines and topics in this opening part but really to sharpen some of the issues that before I open to the floor I have a couple of questions for each panel member. So Sylvia, a lot of what Chairman just mentioned there is country by country analysis but we also think of the year area of fiscal stance in the aggregate. So when you look at the near term, let's say the next couple of years when you look at the year area as an aggregate for the fiscal stance and also the fiscal and monetary mix, what do you think of the where collectively the European fiscal position should be going and then maybe second taking advantage of your kind of markets rule. What we learned so far from how next generation the EU has been financed through the issue of the supranational bonds. So Sylvia if you have any insights needed. Thank you Phil. So to your first question on the Euro area aggregate fiscal stance I mean when we look at the draft budget of the various countries we assess them and in particular we focus on the four and we sort of like took that as a sort of like big picture and you know for Euro area fiscal stance we basically as I was saying beginning see it almost neutral to slightly fiscal, slightly restrictive in the next two years I mean of the tune of like reducing growth by a 10 to 20 basis point every year and that's a combination of the nature of measures that are in the budget and the multiplier that we apply to those measures. So on what should the proper fiscal and monetary policy mix again I'm showing this room that are people who are much more qualified than I am to give this but the way I think to it is the following. One when I think about the fiscal position of countries and the Euro area as a whole. I really think that in a sense one size that's not fit all right there are I think at the Euro area level of average we know that the deficit is pretty low it's converging you know is declining and the average debt to GDP ratio is also much lower than what we have in the US or in the UK or in Japan for like but then we have some countries that have very high debt to GDP ratio. I think when I read the literature for me when we think about the need of fiscal adjustments or reducing the debt to GDP ratio is really more to create, re-obtain fiscal space is more and so have an instrument that we can use in time of needs it's more to avoid fiscal crisis rather than honestly thinking about the impact on fiscal policy for example on inflation. I think again both the IMF work both the work that Olivier was mentioning before on the energy measures but also some excellent work have done here at DCB on that really shows that you know we had expansionary fiscal measures last year but they contributed to lower inflation not to increase inflation directly through moderating energy prices and indirectly through avoiding second rounds effect on wages. So again there I would say look the composition that the changes in this instrument is important. On the monetary policy stance again our own view is that I mean we share the fact that monetary policies are restrictive and very restrictive and I mean the view from us at Barclays and you know the market is that it will become much less restrictive or you know it will converge towards neutral in the next year or so and so in terms of mix I think that's where I think you know the way I think of the interaction of these two policies for the next two years. Now obviously there are always risks right and unforeseen events. Now on your second questions on the NGU bonds what do we hear? I mean just for those who are not perhaps in the weeds I mean one way to track the performances of these bonds is obviously to compare the yield at different maturities vis-à-vis the yield of Germany the yield of French bonds and you know the NGU and EU bonds are trading at the premium relative to French bonds so even though the rating is better relative to the French bonds they trade at the premium and when I talk to investors things that are usually point out are the following one this can be seen as a liquidity premium after all the market is smaller to the uncertainty or the fact actually that these are seen still as temporary instruments right is something that impact on the liquidity impact on the way in which investors assess the these bonds and then there are a variety of I would say structural factors micro structural factors that have to do with the markets which is you know the absence for example future markets repo markets are important and so that the way in which they're used as a collateral so these are all factors that I think are important for investors. Thank you Sylvia. So Ro I mean we've heard it in this session but also in Olivier's keynote that it's very important for any kind of fiscal adjustment that is national ownership and I think it's identified and we now have a quite a number of years of track record in relation to the role of independent fiscal councils and indeed the European fiscal board. Of course under the new framework to reap the benefits and I suppose this partly goes to the safeguard relationship that the chairman raised. What is your assessment I mean that's what this question of what should be the way the world is and then what will be the world that we live in and including in that it is basically do these councils have the resources are they sufficiently truly independent from the fiscal authority and what are the conditions needed to make them effective because what I see is a huge variation across Europe. I mean I think personally speaking the European fiscal board has been a real success but I would ask you to comment on yourself but as far as you can on a forward-looking basis I mean there's a lot of weight that's been put on these institutions but you tell me what's needed for them to deliver. Okay thank you thank you Phil. On the independent fiscal institutions I think the November last year communication by the commission was actually I think they had great ambitions with the IFIs so for example now they are responsible for consenting or producing the macroeconomic forecast. I think in the communication the idea was to extend this to also to budgetary forecasts or maybe this was in any case this was also in the legislative proposal if I remember correctly the one from April. Now when I now look at the Spanish compromise text then I see that a lot of ambition has gone so basically regarding the IFIs it's my impression that we are back at where we started so with the current roles maybe a little bit of an extension but substantially less than what was envisioned originally and I think that is it's a pity because you know one of the essential elements of the proposed reform is of course the increase in ownership. One element of ownership is that after a technical trajectory proposed by the commission then country can you know will come up with its you know fiscal structural plan and so that will be of its own design and that of course you know since it is its own plan it is easier to hold it accountable but then and another element important element of the ownership would be the role of the independent fiscal institutions but here as I said the you know the commission has gone down relative to what was originally proposed. Now why is that? Well it's I think unfortunately you know you never love your critics and so I think ministries of finance well I mean these IFIs they of course they scrutinize the work of the government of the ministry of finance and of course and they may criticize their work and of course that is you know they may not be very fond of this so clearly and I think that was also clear in the I think in the March Agafin conclusions that the ministries of finance didn't want you know much bigger role for the independent fiscal institutions. Now and that that is a pity because even countries which you know the so-called very disciplined countries even they are not very much in favor of strengthening these independent fiscal institutions and I think it's a it's a so that is that is a pity because say if you take a very disciplined country then you know it would be of course it's you know upgrading its own IFI may lead to more you know scrutinizing of its its policies but of course if you do that in the entire EU then you would you know you as a disciplined country you would benefit from more disciplined elsewhere and so I think in a way you know governments have been short-sighted in that respect. Now of course when it comes to you know two resources and so on the IFIs there have been surveys among IFIs and generally for the current tasks they most of them have enough resources and you know independence but there are always some that are struggling and so so I think that it would be useful to have and there has been a lot of discussion about minimum standards regarding resources regarding access and timely access to to information etc. So and I think they also in their position papers they also complain a little bit about the fact that well in a way there is so when you so the commission of course scrutinizes fiscal policies but then there are also the national IFIs and there's not necessarily coordination between the two so it sometimes happens that the commission gives a verdict but then you know what is what is the role of the IFI in the discussion and so I think ideally you would have the IFI which knows a lot more I think about the details of the economic situation and the political situation in the country ideally they would give input to the commission and then the commission should be able to to make its assessment using these inputs. Of course the European semester is very packed so it is a challenge to you know just time-wise to accomplish that but I think that would be the ideal situation. On the European fiscal board well being member of the European fiscal board I think I cannot say too much but I think one a role is envisaged to increase at least in these latest proposals you know written down by the Spanish presidency so we would have a role for you know in the general escape clause. I could imagine that the European fiscal board could also say something about the on these fiscal structure structural plans but then in a horizontal how you say you know a comparison of the plans across countries so that is also what we do now we compare in a horizontal way how the commission applies the applies the role so that could be a potential role for the for the EFB but other than that I you know let all the people speak about the EFB thank you. Thank you so let me turn to Valdus who is incredibly busy person because not only has he many other portfolios he also has a trade portfolio of the commission and you would occasionally see me in the media all over the world all over the world negotiating for the for us in different settings and you talked about open-street autonomy you talked about the fact that most of the growth in the world economy is going to be external so I think this raises two questions. One is indeed how you see trade relations between the EU and some of the other major regions of the world such as China and the Middle East and then second is for autonomy whether we should rely more on domestic demand because that external demand that can be kind of subject to that geopolitical risk and then of course if we need to rely on domestic demand had had that connects to the physical topic so whether that's national fiscal policies or a common fiscal policy so Valdus I don't know if he can take on any or that of some subset of what I just asked you. Thank you very much for this question. Well first of all it's true that trade and geopolitics is now more entangled and it's something which we have seen in recent years like by certain where so economic question policies taken by China or by Russia's weaponization of energy supplies which we had to deal with last year or now by export controls being introduced by China and US and there may be some proliferation of this but at the same time we must remember that trade is a key driver of our innovation and economic growth around 20 percent of the jobs in the EU almost 20 something like 18 percent are linked with our exports and open markets ensure the global competitive position in the EU. Also increases in openness are associated with higher productivity growth so OECD estimates that one percentage point raise in trade openness so measured as exports plus imports as a share of GDP raises multifactor productivity by 0.2 percent after five years and 0.6 percent in long run. So it's vital for productivity and also it's worth noting that EU is not resource rich so we need trade investments to secure access to raw materials especially now in a context of green and digital transitions. So openness to trade and international cooperation are vital to diversify sources of supply and addressing global supply chain vulnerabilities. But of course we see that the paradigm is shifting and there is more shift of the paradigm from efficiency to resilience but it's coming at the cost so higher import prices, segmented markets, diminished access to technology and ultimately reduced productivity. So there are estimates on macro-chromic impacts of trade fragmentation so global trade fragmentation in a form of increased trade barriers and higher trade policy uncertainty can lead to five to seven percent reduction in global output in long term. If it's coupled with, coupled well with, if we add technological decoupling then losses can go up to 12 percent of GDP in long term and on top of this according to IMF fragmentation of capital flows like FDIs could also add costs in range of two percent of GDP and on FDI flows is something we are actually starting to see. So as you see from those figures for Euro area it's difficult to imagine that increased internal demand can fully compensate for the losses that would come from trade fragmentation. So of course it does not diminish the fact that we need to carry out investments to boost competitiveness and to boost domestic demand but clearly it cannot compensate from loss of global trading system. So maybe coming to questions you raised with some specific trading partners what is our approach? Like with China as you know we have a complex policy relationship where we see them as a cooperation partner, economic competitor and strategic rival. So there are areas where we need to cooperate with China like on climate change. China is the world's biggest emitter so if we want to deal with climate change we need to deal with China. WTO reform to preserve rules based international trading system. On economic competitor China is our second biggest trading partner but trade is very in balance. So last year our trade deficit with China was almost 400 billion euros so we are now working and also reaching out to China actively to address some market access barriers in China to address this and well systemic rival dimension basically with China promoting different socio-economic system from ours. Then on Middle East probably a part of the conflict in Middle East we are facing right now. I probably will extend it to the southern neighborhood. What we see there currently are strong import substitution policies and that certainly can also affect EU trade flows and foreign investments so we believe that instead efforts should be made to improve business and investment climate to attract sustainable investments but nevertheless this temptation to impose protectionist policies are there and we clearly will need to deal with this. Another question I wanted to briefly outline in this more conflictual geopolitical context is our economic security strategy because clearly while remaining open we also need to see how to protect our interests of national security and public order so that's why we came as European Commission with economic security strategy so meaning maintaining and growing our partnerships around the world remaining open but addressing the identified risks in a targeted way. So basically there are three prongs in our economic security strategy promoting the EU's competitiveness protecting our economic security by using a range of existing tools and considering new ones and partnering with a broadest range of reliable partners to strengthen the diversification and resilience of supply chains. In terms of work on existing and new tools just to outline them now we are looking now at our foreign direct investment screening regulation to address FDIs which may impact economic which may impact public order or national security, export controls clearly becoming more and more prominent issue and also we're looking at the issue related risks posed by outbound investment as a which may be a way to bypass export controls but that's basically the new area for us to look so we are relatively cautious on this. And just to wrap up the soul because the question was what's the impact for fiscal policies I think also in this more conflictual geopolitical context it's important that we are having our own house in order and ensuring the macroeconomical and financial stability including by means of a sound fiscal policy in a sense we need resilience at home to be also able to tackle challenges coming from abroad. Thank you. Clearly if you did comparisons between where we are and where the US is and Silvia raised some of the comparison numbers earlier on the obvious and glaring difference is the central fiscal capacity. So there's basically sometimes articulated in two ways. One is a central fiscal capacity can help us provide European public goods so whether that's the front the green transition early on we heard about schemes where you would target cross border investment so that's one vision the other vision which could be complementary could be orthogonal is macro stabilization. So at one level my question is what we want or what is needed from a central fiscal capacity. And then second of course is especially since next next generation of you was clearly had a very state contingent nature is a response to the pandemic. What are the necessary and sufficient conditions to see a more permanent feature and let me vary that between absolutely permanent it's there versus a state contingent but what states of the world are we likely to see more of a central response. Okay so what I would like to see is a permanent fiscal capacity that responds to a structural need for European public goods that are most obvious I think during the green transition but this will take us for a while so this will be green public investment that are related to and why at the European level well because of the massive externalities right that the goals are formulated European level the instruments are mostly at the national if we have some instruments at the European level that would actually help make those targets credible then we have some investments which have cross-border externalities beyond just emissions and then finally when it comes to economic security of course that is a joint European interest and so even here you know to the extent that we're thinking of some forms very judicious forms of industrial policy they should be funded and executed at the European level and that way we keep the level playing field and avoid the state aid problem right so there's this very straightforward I think argument to have a permanent capacity now how do you deal with the with with macro stabilization aspects well in part by borrowing right so by debt financing it so that gives you if you lack an automatic stabilization property of that capacity to the extent so I would mostly make it about European public goods and not mainly about macro stabilization certainly the permanent part of the capacity right if we have another need for huge discretionary injection we can probably pull off something like the NGU again in the in the face of a very clear and present danger right but but I think this would then be ad hoc the main then the question is to if we make it permanent should it be in the form of a fund of the type that rule just talked about and that others including Louise what is here have written about in the past and or should it be in addition to the EU budget and this I would mostly answer in a pragmatic fashion I think that it turns out ironically perhaps that from a legal perspective it is easier to debt finance the EU budget than to debt finance a fund and the reason for that is that when you debt finance a fund it is consider externally and signed revenue or other revenue and the European law for very intuitive reasons puts quite narrow limits on trying to do things of budget right so if you really want to go with debt financing this is fine but you need to do it on budget you need to change the own resources decision of the EU to essentially declare debt in own resource if you do that it is sort of legal another and 3d it does require unanimity and then of course you need to provide a future revenue flow that will service that that debt but you could do it with an usual advantages of debt in particularly if you if you designate debt in own resource you could also refinance debt that amortizes with new issuance of debt the big problem here is not legal it's it's political and the point of course is that there will is a food fight between the European level and the member state level on the genuine own resources so the revenue flows that would finance the debt when it comes to assigning those to the European budget so you need to make a very clear efficiency case that it's better to do some of these things at the EU level but then I think what would also be important is to sort of be creative about tapping revenue sources and here I mean Wilders knows a lot more but I think you know even the very modest own resource proposals that Commission made I believe in June have run into trouble which is depressing and you know one way potentially and here I'm fantasizing of getting this unstuck just conceptually would be to tap a revenue base that is not actually used by member states very much these days and that would be a net wealth tax for the super rich so if you could do that it would be great because you know it's not taking money from the member states it would be something new there's an initiative sponsored by some socialist MEPs that's going on right now and I basically wish them the very best very good so let me take a few minutes and we'll go over the 530 deadline a little bit just to create some room so I think it's probably efficient if I just collect short questions from the floor and then I'll see what the panel members want to respond to so if you want to Bayard. Thank you very much just one question on next generation EU and what that could mean going forward of course as commissioner Dombrovsky said at the time it was very much done under the condition that it was a one-off but at the same time many people would say well if it's going to be a success if it's seen as countries making good use of this money and so on there could be you know some form of physical capacity or new type of this form could come out of it now I don't expect you know Mr Dombrovsky's to necessarily comment on this but maybe the other ones in terms of you know how how how do they judge the success of this so far and are we on the way where yes physical capacity is more realistic now or the opposite where this isn't really going that well thanks I'm next going to ask Louis Garacano but then I'm going to look at this side of the room so so now's the opportunity for those of you who sit over on that side of the room to see if you request but in the meantime Louis yes this is a right wing biased right wing of the room so so a couple of comments very interesting remarks just one comment which is political and goes to the politics that Jeremy was discussing now so so when the whole discussion happened obviously the parliament the parliament and many of us was pushing for two things right on the expenditure side public goods on the revenue side common revenue on resources for Europe the problem is once it gets to the council etc there is nobody who defends any of those two things so none of the money went for European public goods it was all basically appropriated by the member states and every time there's a new source of revenue instead of going to own resources it's going to the government and get their hands on it whatever the new source of revenue is is basically flowing to the country so what appeared at the moment to be the start of a Hamiltonian moment for Europe I mean you needed sources of revenue to pay for that in European expenses and none of the two things happened so I guess looking back it's probably a failure for Europe to a large extent I don't know if anybody wants to comment on that who's arguing for Europe and who's arguing for European it sounds like yeah this sounds sensible but nobody in the council is saying oh let's do more things together everybody wants money for themselves that's what ended up happening and the second comment is on the banking union which is also something that when economists talk about it always sounds like yes we should do banking union and I think we've all heard the phrase we need to complete the banking union now I wouldn't even say complete the capital markets union because Mr Lombrowski knows that very well is that just just basically at the time of the TPI I don't know if coincidentally the roadmap that was being negotiated by the Eurogroup to start to complete the banking union the deposit insurance was basically abandoned they just said look we're not going to do this so I mean banking union has gone from being a project that we were hoping to complete to not right now I don't think I mean hopefully Mr Lombrowski corrects me but it's not even in the books right now I mean it's not we're not even making progress towards it there is some crisis and resolution things kicking around but nothing for the deposit insurance as far as I can tell so the politics of these two issues the common fiscal capacity with common revenue and the banking union which are two key elements to make the governance the governance that reforms that the economy seems impossible right now to me. Thank you so as I said there's a reserved affirmative action slot over here so does anyone want to raise a question please Christiana. I take the affirmative action and I have the question on the central fiscal capacity because when you argue about it you talked about EU public goods the question is shouldn't European public goods actually be financed by the EU budget so in other words we should advocate for a bigger EU budget and shouldn't the central fiscal capacity actually really be for stabilization because this kind of you know this lack of having sort of a fiscal stance a common fiscal stance and then having that sort of a sort of a counterpart in a way to also what monetary policy is doing wouldn't that make more sense. So we serve the central fiscal capacity for stabilization. Thank you. Sander. Yeah I just had a question for rule and Jeremy because if I listen to you my impression is basically this fiscal rule reform works for five years if I listen to you Jeremy because after that we are in a world where it's imposing unrealistic requirements and that's the world in which countries break the rules right so and then if I think NGU runs out 2026 we have a bunch of cohesion money that's not being absorbed at all and it's allowed to be absorbed by the N plus three rule so it can go into the next MFF which means that more or less at the same time we really start running out of European money so are we headed for a scenario where the entire fiscal settlement has to be renegotiated in five years? And of course not even to start thinking about the expansion of the EU and the fiscal educations of that. Yeah more on that. One thing that it's sort of amazing seeing it from outside is that the discussion of the rules it seems like is done as it was doing 20 years ago except that now we have more experience. But not only we have more experience EU has changed dramatically for example we have one-third of the EU that's in EU institutions we don't have a common debt policy because there is no such a thing as a fiscal authority to do that to coordinate what to do with that. When we talk about the public goods it can be different, maybe we don't have a way to do it physically to have this fund but in any case we are making commitments of the countries. So who is putting all the numbers together? And when the commission says now we're going to hold all these things about green, the fence blah blah blah blah blah blah and in addition we're going to do stabilization and in addition we're going to have to do something with the debt we have who puts all these things together. And I think it's when I talk about the stability fund which is a little bit different than that is about this thing and that requires some independence from the commission because the commission is the one who is now making commitments which go way beyond their term and a good thing of a permanent institution is that things are farsighted and therefore everyone is on that. Then the IFIs can play a much role because they have someone to back and someone to refer to. In the same way the ESC, the central bank has someone to talk to so I will be more ambitious even if of course that's not on the table. Giovanni from the ESM I have one question that is connected to the one of Sander and Ramon that is how do the panel see the function of these fiscal rules in times of tensions? Not only they work under the next 5 years but they work under times in which rates are under control in a sense and spreads are under control. There is a technical element for instance that I think of, rates projection are based on market forward. So if markets start to doubt the capacity and reprise the risk premium will increase the need for fiscal adjustment so it makes the fiscal adjustment even bigger by increasing the interest payments down the horizon. What are the mechanisms that can do you think these mechanisms can really work to make the fiscal situation self-adjusting also in times of tensions? Thank you so much. So a lot of different questions and comments have been made there. So I'm just going to ask the panelists to pick and choose if there is anything there that has sparked an insight or a response. So let me go in reverse order so Chairman. Okay Christiana thank you so much. I guess my view is we need a federal budget and not a fiscal capacity and so my first preference would be to expand the EU budget to finance it and then you don't need this macro stabilization stuff because that would happen through automatic stabilizers to the extent that that's not enough because even in my wildest dreams the EU budget will be small. We can always do a new NGU type fund ad hoc so the answer is no I don't think we need a central physical capacity except to do this ad hoc thing. Sander's point will there be renegotiation in five years is the whole credible. So I think actually what is not credible is the sort of long run 10 year, beyond 10 years torture instruments that's just a fantasy. What is not credible is this deficit resilience stuff going on for a generation. I think 4 to 7 year thing is credible or could be made credible I mean it's been taken incredibly seriously by member states and you know it will probably not work as intended but the bar is very low the bar is it has to work better than the old system so I think yeah they're going to come up with this they're going to implement it and you know something will happen and then after four years there will be the new application and I think there will simply be a new application of the existing system I don't think there will be a new system in four years and these 10 year old things are going to be completely irrelevant I have no idea how thinking of why this would ever be relevant if after four years you come up with a new plan I have no idea and my view it's pure window dressing Italy should just shrug and sign and then maybe can the new system work to deal with tensions it depends on what you mean by tension political or shocks shocks yeah no no I mean look we beat up a lot on this new system it's much better designed than the current one these are supposed to be net expenditure paths they're supposed to be immune to interest shocks immune to output shocks everything is is automatically stabilized and then we have two not one but two escape clauses so in principle this stuff is very well designed the only problem with it are these ridiculous sort of you have to do .5 this year you have to do .3 this year right that's where the conflict might come from but then there are wise people sitting next to you who say look at the end of the day the commission has a lot of discretion about what to do with these excessive deficit procedure and this new you know semi-excessive deficit procedure that they're inventing so I would be quite sanguine that actually yeah it is flexible enough thank you Valdis yes thank you maybe let me first touch upon some points on the banking union which was raised and then I will also go to those broader EU budget topics well indeed the point was that we are all talking about concluding the banking union but Eurogroup was not able to agree on the roadmap towards completion of the banking union so what they were able to agree however that the commission should file the proposal and the commission filed the proposal on crisis management deposit insurance and all in all I would say the debates on this legislative proposal are constructive they are not easy because in a sense same things which Member States were not able to agree in context of the roadmap are the things that are now not able to agree in the context of the commission legislative proposal but all in all I am modestly optimistic that we will be able to make progress not during this legislative cycle I don't think it can move this fast but all in all I think we are able to actually land as this proposal and that would be another step towards completion of the banking union then there was a question on this fiscal capacity versus bigger EU budget well that also may be a topic of terminology well on one hand indeed there is nothing preventing us to have discussions about bigger EU budget as a way to finance common European goods maybe where the difference with fiscal capacity comes in that it's debt financed whereas EU budget is balanced according to the treaty has to be balanced it already took some legal acrobatic to arrive at this construction for next generation EU being debt financed so that may be a difference between bigger budget and fiscal capacity in terms of stabilization function well we have European stability mechanisms already now for example in the context of covid proposed certain precautionary instruments as this pandemic crisis support with a ratification of new ESM treaty should that be finalized there is even more scope for precautionary instruments in a context of ESM so ESM can provide the stabilization function and then well the ad hoc fiscal capacity as we had in the context of next generation you indeed can help address some very large unexpected economic shocks like we had with covid pandemic so but politically this discussion is not going to be easy because well the same countries which had been very clear about next generation new being one of instrument and I remember for example when we were having just just another recovery and resilience dialogue with European Parliament hardly any of those dialogues goes by without some member asking this question what about making this RRA for next generation per moment and we're attending these events together with combination of Gentiloni and we kind of did not on one occasion completely slammed the door for this proposal and that was before ratification of the relevant decisions by Finland and it was a big scandal in Finland and almost derailed ratification of this whole next generation new package there I think use a certain indication but then the same countries which are insisting next generation EU being one of are the same countries which are saying no to the bigger EU budget so politically it's not going to be easy discussion well in terms of this kind of distribution of EU funding flows over the time on this I'm more optimistic because indeed now next generation EU and RRAF is more front loaded with a peak absorption was supposed to be this year maybe it's going to be next year but in any case the peak absorption of RRAF is going to be before peak absorption of cohesion in this financing period so from that point of view it can actually help with more steady EU financing flows over this financing future which certainly is helpful I probably stop here thank you thanks Wille just to be clear I think having an increased EU budget would be preferable to a fund but I think it's easier to establish a new fund than to increase the EU budget because that would then be kind of a status quo point and some countries would fear that the EU budget could never go down so but I think coming back to the questions here if I understand them correctly so we are now dealing with the fiscal rules and in a way this is just dealing with part of everything that needs to be dealt with and I understand why because it's politically much more difficult to deal with why the range of issues but that also means that in a way we are dealing in an incremental way with the issues that have to be dealt with so maybe the outcomes are then not consistent and in the number of years we will maybe need another reform of the rules in 1999 we as EFB put a report for President Juncker of the European Commission in which we also made some proposals in a way on the deeper governance so for example there we proposed a full-time chair of the Eurogroup to have more how you say more permanency in the policies we actually advocated an independent institution that would look at when would the general escape national or general escape clause be applied etc so I think it also needs to look more deeply at the governance and not only the fiscal rules but also what is below it so issues of permanency indeed that the counterparts have in a way a permanent institution to talk to I very much agree with that thank you on the fiscal rules I would I mean Jeremy said the bar is low to do something better than what we have I agree I mean that after four years or three years of discussion might be assessed as a failure not to agree on anything but I also think that it would be a failure for the credibility of EU institutions if once we agree on a system this system is then not respected and becomes de facto not binding or not relevant after a year perhaps not after five and the second one aspect that I think is also important at least for us for the practitioner is I mean there was an excellent conference in Luxembourg at the ESM and everybody seems to agree that the system is not going to be that simple something that we had agreed with all these safeguards and I think it would be useful to have at least you know data in real time on that the commission will assess to determine whether some certain fiscal adjustment has been met or not met what is the fiscal stance I mean to be fair and honest I'm not able to reconstruct or replicate the fiscal stance using the new rule that the commission has because I don't have the data and I think that's something that impact also from the investor side on the credibility of the EU institutions on the last word on the federal budget versus you know stabilization funds versus what Luis was saying I mean at the end of the day perhaps we really should think about the various layers of governments right and how much we want fiscal policies to be centralized versus decentralized I mean we can have a bigger federal fund budget fund but the reasons why nobody wants it is because nobody wants to give up what you have in terms of national sovereignty and at the end of the day we need to sort that out at some point Thank you Sylvia I mean I think everyone here probably knows Maria Draghi's speech from this summer about the urgency of actually building that European political identity because you know we are in this kind of slow moving situation where probably the end point eventually we'll get there but the timeline is very uncertain so with that by overrunning the panel I've solved the problem how to spend those 30 minutes between the end of the session and the drinks at six o'clock now you have a smaller problem to solve but let me thank again the panelists for very wide ranging, very expert contributions so thank you very much