A QUANTITATIVE EVALUATION OF THE EUROPEAN COMMISSION’S FISCAL GOVERNANCE PROPOSAL

• If debt is below 60 percent of GDP at the beginning of the adjustment period, SPB* is set such that (1) in all three stress scenarios, debt does not exceed 60 percent at any time during the 10-year period after the end of the adjustment period (deterministic scenarios), and (2) the probability that the debt ratio at the end of the fifth year after the adjustment period exceeds 60 percent of GDP. [...] 2.2 Applying the deficit criterion and the ‘safeguards’ In addition to the DSA-based requirement, the proposed regulation requires deficits to fall to 3 percent by the last year of the adjustment period, and to not exceed 3 percent in the 10 years after the adjustment period (the ‘deficit benchmark requirement’), and the four ‘safeguards’ outlined in Article 15 of the regulation to be met. [...] When neither the debt nor the deficit safeguard is binding, it shows the maximum of the SPBs meeting the DSA requirement, the deficit benchmark requirement and the net expenditure growth safeguard; when either the debt safeguard or the excessive deficit safeguard is binding, it is the value shown in column (12). [...] Because the required debt reduction under the 1/20th rule would decline over time (as the difference between the projected debt ratio and the required 60 percent declines) we undertake the comparison, first, in the first three years of the adjustment period, and second, in the first three years of the post-adjustment period. [...] In the first case, the annual debt change required under the adjustment rule is based on the 2024 projected debt level, while in the second case, it is based on the debt ratio for the end of the adjustment period that would be projected if the proposed system is implemented.