Fiscal Councils as Watchdogs in the Eurozone Countries: How Loud Do They Bark?

The Fiscal Compact and the Two-Pack required all members of the Eurozone to create an independent body that monitors government’s compliance with national fiscal rules and produces or endorses macroeconomic projections. It has been hoped that having domestic fiscal watchdogs – who “bark” when the observe non-compliance with fiscal rules and biased forecasts ‒ would enhance fiscal sustainability. So far, there has been a lack of comparative case studies about the impacts of fiscal councils. Our paper seeks to address this gap by undertaking a comparative case study of the impacts of fiscal councils in Ireland, Portugal, and Austria. In particular, our research question is: how do the key actors involved in fiscal policy perceive the impacts of the fiscal council in their country? The case selection was based on the following reasoning. Ireland, Portugal, and Austria are all small countries and members of the Eurozone. The functions and institutional characteristics of their fiscal councils are broadly similar. At the same time, our cases also exhibit potentially useful variation. They experienced a varying degree of crisis and represent different administrative traditions: Napoleonic (Portugal), Germanic (Austria), and Anglo-Saxon (Ireland). The sources of data for the case study countries included semi-structured interviews conducted with public officials and policy experts (8-12 interviews per country) and policy documents. The interviews were conducted in 2017-2018. The theoretical part of the paper outlines the main expected impacts of fiscal councils. Theoretically, fiscal councils are expected to: reduce information asymmetry, and, through that, increase government’s commitment to fiscal discipline; increase the accuracy of forecasts; promote long-term perspective of public finances; buttress the position of the finance ministry in the budget process. The empirical study analyzes to what extent these impacts can be observed in the three cases examined. Our comparative case study shows that in all three countries, the fiscal councils have been viewed as making a significant contribution to the public debates about fiscal policy. At the same time, in all three countries, there were no clear examples of where the government would have significantly changed the fiscal policy stance in response to the criticism from the fiscal council. While there have been no major confrontations between the fiscal council and government in Ireland and Austria, the interactions have become increasingly confrontational in Portugal. We can also observe emerging competition between the domestic fiscal councils and the European Commission in their task of assessing the member states’ fiscal policy. In all three countries, the fiscal councils were perceived as potential allies of the finance ministries and helping to strengthen their position in the budget process. In all three countries, the rigour of macroeconomic and fiscal forecasting has improved owing to the fiscal councils. At the same time, in none of the countries have the fiscal councils been successful in getting the government to take the longer-term perspective on public finances more seriously.