Policy Insight 121: The European Commission’s expenditure benchmark

The European Commission has proposed a new revision of the Growth and Stability Pact (SGP), which aims to shift the focus to longer-term sustainability rather than annual public finances. The new proposal also moves away from budget balance assessments and instead emphasizes the expenditure benchmark as the central measure. This Policy Insight argues that while the proposal's long-term view aligned with sustainability is a step in the right direction, the shift to the expenditure benchmark may undermine this progress. The Insight also examines how the SGP's previous benchmarks failed to establish fiscal discipline and suggests that the proposed changes could help deliver debt discipline among euro area member countries.