Communication on new budgetary instruments for the euro area

— The Commission intends to introduce a new “reform delivery tool” under
the next Multiannual Financial Framework, i.e. Post 2020, that will set
financial incentives for member states that commit to reforms discussed with
the COM in the context of the European Semester and agreed in reform
commitments. This seems to echo a proposal (so-called
“Vertragspartnerschaften”) put forward by the German government back in
2013 to incentivize member states to tackle structural reforms across the
board. It failed, however, to get the backing of the euro area partners at that
time with one side arguing that countries should not be compensated for
reforms which are in their own interest and the other side being concerned
about interference in national sovereignty – plus the question of fund raising.

The discussion has gained momentum, though, also in the context of linking
the allocation of existing Structural and Investment Funds to the receiving
member state’s compliance with policy recommendations of the COM and
respectively the Council. Sensibly implemented, this move has at least the
potential to improve competitiveness and crisis resilience on a national
level.

It should be noted, though, that the COM at the same time will
continue to make use of the inbuilt flexibility in the fiscal rules in support for
reforms, implying that it is prepared to accept a deviation from the budget
deficit rule and the MTO in return for reforms. This could mean a double
reward for reforms.