All the risks of Brussels carrot and stick policy with the Stability Pact
What is the European Commission planning on the Stability and Growth Pact? Giuseppe Liturri's analysis
This week, regarding the Stability and Growth Pact, we have understood three things, one for the immediate future and the other for the future:
- The Commission is preparing, as part of the European Semester procedures, to keep the general safeguard clause active also for 2022 and almost certainly to deactivate it in 2023. With the exception of countries that have not yet reached pre-Covid GDP levels , which will be guaranteed maximum flexibility.
- What rules will be reintroduced from 2023? The answer is entrusted to the outcome of a public consultation (which was announced before the epidemic). That is, the Greek Kalends. Or rather, in other words, before the vote in Germany in September and whoever takes office a new government, everything is frozen. In the debate, the proposal not to count “green” investments in the deficit (the so-called “limited golden rule”) peeps out. But it is a bone thrown in to pass the time. Until the Germans are operational again, all the ancient and harmful paraphernalia constituted by the Stability and Growth Pact (SGP) and its worthy supporting actors introduced in 2011/2012, namely the Six-pack, Two- will not be questioned. pack and the Fiscal Compact.
- In the impossibility of modifying anything in legislative terms, we proceed as usual in the EU: the rules will be interpreted for friends and they will apply for enemies. This could include a possibly unwelcome Italian government (such as that of 2018), resulting from the elections of 2023.
If these are the coordinates that will dominate the future, in the present the assault of reality is leading the Commission to proceed with extreme caution with the instruments of torture listed above. Also in light of the bad results of 2011/2012.
In Brussels they are so terrified of repeating the fatal mistakes made at the beginning of the last decade – when they plunged half the EU (Italy in the lead) into a second recession, for which they now candidly admit responsibility – that on Wednesday they considered it appropriate to publish an official Communication on how they intend to proceed in the coming months. The uniqueness of the document, whose informal character is underlined, should be emphasized because it anticipates the Commission's next moves in an unusual way, which will then be formally adopted by the end of May, following the calendar of the economic policy coordination cycle that goes under. the name of the European Semester. The urgency is also given by the fact that the States must prepare the Plans for Stability and Convergence for next April and these guidelines serve to keep them from operating in the dark.
It is also likely that this particular attention is the result of a semblance of a common front that is being created between countries in serious difficulty such as Italy, France, Spain, whose strength could also be helped by the authoritativeness of Mario Draghi in managing a decisive dossier. such as that constituted by the public budget policies of the member states and the EU rules governing them.
Commissioners Valdis Dombrovskis and Paolo Gentiloni, now skilfully cast in the role of the bad cop and the good cop, immediately rushed to announce that – despite the procedures of the SGP are not suspended at all, but only a temporary deviation from the average objectives is allowed term – it is essential that fiscal policies are adequately expansionary in both 2021 and 2022 and that a premature withdrawal of these supports must be avoided. In the Commission's opinion, “the decision to deactivate the general safeguard clause should be taken after an overall assessment of the state of the economy on the basis of quantitative criteria . The level of economic activity in the EU or the euro area relative to pre-crisis levels (end of 2019 ) would be the key quantitative criterion for the Commission in making its overall assessment of the decommissioning or continuation of application of the clause of general safeguard. Therefore, the current preliminary indications would suggest continuing to apply the general safeguard clause in 2022 and to deactivate it starting from 2023. "
Subsequently, once health risks diminish, "fiscal measures should gradually move to more targeted and forward-looking measures," the Commissioners conclude.
But the Commissioners are aware that the impact of the crisis has been highly asymmetrical and so will the recovery (Bank of Italy expects the return of Italy's GDP to the pre-crisis level at the end of 2023) and therefore they announce that " the specific situations of the countries will continue to be taken into consideration even after the deactivation of the general safeguard clause. In the event that a Member State has not recovered the pre-crisis level of economic activity, all the flexibilities within the Stability and Growth Pact will be fully utilized ”. Unfortunately, they do not give up their instruments at all , they just loosen their grip, registering a flexibility whose application methods we know well, and this can only worry us.
If these concepts had not reached the Italian public opinion clearly, we found them exactly re-proposed on Thursday 4th in Federico Fubini's interview with Dombrovskis, which appeared in Corriere della Sera: for the moment they exercise goodness, but still keep the gun on the table, and loaded as well.
In that interview, Dombrovskis confirms that the space to spend for the recovery, without borrowing, will be that offered by the Recovery Fund. Because the Commission believes that " Expenditure financed by RFF grants will give a substantial boost to the economy in the coming years, without increasing national deficits and debt . " But this statement clashes with the evidence of the numbers: the RRF provides subsidies for about 3% of EU GDP (for Italy 5% of GDP) divided over 6 years up to 2026 (with commitments to be assumed all by 2023).
But it is the Commission itself that admits that the response of national public budgets to the crisis – including additional spending, lower taxes and automatic stabilizers – amounted to around 8% of GDP in 2020. Without it, we would have lost an additional 4.5. percentage points of GDP.
So, the enormous difference in size between the elephant of the national budget commitments and the mouse of the RRF cannot fail to catch the eye, which should provide, according to the Bank of Italy , a modest additional growth of 2 percentage points by 2023-2024. . If the Commission thinks of imposing prudence on the States in spending, trusting in the RRF, it could commit yet another fatal mistake.
For the moment this passes the convent and we must be content with guidelines that rise to the role of sources of law. The triumph of discretion that we cannot but read as a sword of Damocles hanging over our country, especially if we dare to vote by not following the teachings of the markets.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/tutti-i-rischi-della-politica-del-bastone-e-della-carota-di-bruxelles-con-il-patto-di-stabilita/ on Sat, 06 Mar 2021 18:02:04 +0000.