Because the reform of the EU tax rules proposed by Draghi and Macron does not convince me
Draghi and Macron have at the center of their thoughts and therefore should push them towards ambitious political choices of a very different nature compared to this first technical proposal. Gustavo Piga's analysis
Every citizen who cares about the union of Europe cannot fail to have read with interest and hope the recent article in the Financial Times by the leaders of France and Italy, Macron and Draghi, on the need to change European tax rules. It is not a question of a belated recognition of the past failures of politicians and economists who sing of "too obscure and excessively complex" rules, which do not give "priority to the decisive public expenditures for the future and for our sovereignty, including public investments", but rather an important political commitment to “contribute to our collective ambition for a stronger, more sustainable and fairer Europe”.
The article states that "new proposals will deserve an in-depth discussion, not clouded by ideology, with the aim of better serving the interests of the EU as a whole" and we refer to an attached technical essay by 4 economists, 3 Italians and a French one. Accepting the request to deepen the discussion is essential for the future of Europe.
The 4 economists, in summary, propose a rule apparently similar to the "golden rule" which reduces public investments from the calculation of the relevant deficit in order to favor them, but with at least two differences. The first, potentially positive, also admits special treatment for the so-called “expenses for the future”, current expenses such as subsidies to workers who will lose their jobs due to the ecological transition. On this type of expenditure, a worthy in-depth reflection will be made elsewhere. The second instead, because it only slightly mitigates the rate of reduction of the debt / GDP ratio towards 60%, keeps the worst parts of the current Fiscal Compact, making the proposal unable to relaunch the European Union, relegating it to remain weak , less sustainable, unjust, and therefore ultimately more vulnerable to social ills and prone to secessionist sovereignty, as it has been in the last decade.
Weaker because it is a proposal that does not recover space for countercyclical fiscal policy (which in the current weak situation should be expansionary, like that of the United States) but which instead confirms the current fiscal position, making it only slightly less austere. For example, Italy already plans to implement incredibly austere policies (daughters of the rules that they rightly want to eliminate!) To bring the deficit from 9.4% of GDP to 3.3% in 2024. The proposal of the 4 technicians would leave this situation practically unchanged: “this (new) rule would imply speed of adjustment of the debt / GDP ratios in line with the budgetary projections of the Member States in the coming years. In particular, the deficits in the current budget plans are lower than those required by (our) rule by less than 0.3 percentage points of GDP, both in 2023 and in 2024 ”. 0.3% less GDP is equivalent to an austerity discount of 5 or 6 billion euros a year, too little to be consistent in this macroeconomic context with the ambitions expressed by Draghi and Macron.
Less sustainable because the plan hardly encourages public investment for future generations. If the "preferred expenditure" desired and to be mobilized were in fact 20 billion euros, the premium that would be obtained would be to reduce the speed of debt adjustment, freeing up resources in the following year's budget, by … 600 million. EUR! In the case of Italy, therefore, dedicating 1% of GDP to investments for the future would imply being authorized to carry out 0.03% of GDP less in debt reduction! Figures so minimal as to be irrelevant and incompatible with a courageous reform such as the one the two leaders are aiming for.
And if sustainability were to be understood as the ability of our continent, through its fiscal rules, to become more stable thanks to the reduction of the public debt-GDP ratio, we now know well (having experienced it in Italy) what it is that makes it grow such relationship: the lack of growth due to austerity. With the proposed new rules, if a country sets its debt-to-GDP reduction target at a given value, a lower level of GDP growth rate (due for example to a crisis) would immediately translate into higher levels. (austere) of primary surplus to be achieved. That is the same perverse mechanism that generated the crisis of the last decade: the worse we are as an economy and employment, the more the rule makes us apply austere fiscal policies, enveloping us in the usual vicious circle.
The suggested rule is – among other things – among the darkest and most complex imaginable, the opposite of what the two leaders hoped for: it is no coincidence that no other country in the world has ever imagined them. But above all it makes this Europe more unjust, as it does not care today about the less well-off classes which, as Biden understood and his predecessor Roosevelt almost 100 years before him, could only happen through expansionary fiscal policies, certainly not austere or just less austere, aimed at creating jobs in thousands of public investment sites. Both Biden and Roosevelt were well aware of what was at stake, now as then: the future of US democracy, threatened first by the military and fascist sympathizers, now by populists. The threat in Europe, today as then, still exists: it is called separatist sovereignty which destroys that Europe which, I am sure, our two leaders have at the center of their thoughts and which should therefore push them towards ambitious political choices of something else. nature with respect to this first technical proposal.
(post taken from Professor Gustavo Piga's blog)
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/perche-non-mi-convince-la-riforma-delle-regole-fiscali-ue-proposta-da-draghi-e-macron/ on Sun, 09 Jan 2022 06:50:44 +0000.