Here is the little surprise of debt in the Recovery Plan
Giuseppe Liturri's analysis
On September 1st, before the MEPs of the Economic Affairs and Budget Commissions, Commissioners Valdis Dombrovskis and Paolo Gentiloni took stock of the situation of the EU Next Generation, the "powerful and timely" instrument that has been discussed for a year and a half and which has only entered the executive phase a few weeks ago.
This is the so-called "dialogue" between the European Parliament and the Commission, with which an attempt is made to offer a minimum of visibility to the first institution on a process dominated by the Commission and the Council.
In preparation for the meeting, the services of the European Parliament have drawn up a document in which surprises – such only for those who have been blinded by the propaganda of Brussels in recent months – are not lacking. What we had expected is confirmed and that both the European Fiscal Board (EFB) and Eurostat itself have reiterated: starting from 2028, the debt repayment burden that the EU is beginning to contract by issuing bonds, will immediately enter into effect. part (in proportion to gross national income) of the public debt of the Member States.
For Italy it is about 50/60 billion which will increase the debt / GDP ratio by 4 percentage points. This ratio – which at the end of 2021 will touch 160% and which in 2024 is painstakingly expected to drop to 153%, only to return to pre-pandemic levels only in 2032 – in the 2028 budget will increase by 4 points, returning all of a sudden slightly above 150%. This in the best of the hypotheses foreseen by the Mef, the one in which the effects of the NgEU will fully unfold. The interim scenario projected in the April DEF shows a much less steep debt-to-GDP curve.
As an alternative to this sharp increase in debt, the EU could provide itself with additional own resources (ie taxes to be paid by businesses and workers). But it is precisely the wavering of this hypothesis that makes what has already been foreseen by Eurostat and the EFB very credible. In fact, the deadline of last July, by which the Commission should have presented a proposal for a new tax on the digital sector, on CO2 emissions and on imported products with a high CO2 "footprint", has already been missed. The next deadline is now set for December 22nd. And we dare not imagine what will become of the other deadline of June 2024, scheduled for the launch of a tax on financial transactions and a taxation of corporate income.
Hence the formal need to establish the Member States as debtors of the resources that must flow from 2028 to 2058 to the EU budget to repay the bonds issued until 2026. Of course, this is only the bonds issued, the proceeds of which will then be destined to subsidies (390 billion). Because the bonds intended for the disbursement of loans (360 billion) will immediately generate a double effect in the state budget: the public debt will increase and the deficit at the time of execution of the expenditure will increase. On the other hand, the expenditure incurred by the States and financed by subsidies will not affect the budget balance, due to the offsetting of the two items.
The positive balance for Italy is thus dramatically reduced: the 122 billion in loans will immediately increase the debt, repaid by definition; 84 of subsidies (69 of the RRF and another 15 of minor instruments) will be returned to the EU, via higher contributions which from 2028 will constitute public debt. The net balance is reduced to just under 30 billion in 6 years. The lentil dish, which we have been writing about for a year and a half now, has become a reality.
The document devotes considerable space to the role of the mechanisms of "defense of the Union budget". They operate on two levels: there is a specific rule within the RRF regulation which provides for safeguards and payment freezes for cases of fraud, corruption and the like. And then there is the broader instrument, the 2092 regulation (on the so-called "rule of law") in which cases of intervention to sanction states that are not aligned with respect for the "values" of the EU (an indistinct magma that can be used as needed with wide discretion) are much wider and the sanctions much more invasive. The role of the European Criminal Prosecutor's Office ( EPPO ), operational since 1 June last, is also mentioned. However, this regulation is still the subject of an appeal before the Court of Justice by Poland and Hungary and the Commission has undertaken not to activate it until the sentence is issued.
All this cumbersome financial and bureaucratic contraption to ascertain that the NgEu will bring public investments to a level that in 2023 (peak year of the NGEU) will be equal to 3.5% of GDP, still below the 3.7% reached in 2009, which was followed by the famous ten years of "expansive austerity" which caused them to plummet to 2%. In absolute terms, at constant 2015 prices, we have regained the level of 2009. After years of drought, it is understandable to welcome a water bottle. As long as we do not forget that it is only the one stolen from our country for a long time.
Unfortunately there are also doubts about the "quality of the water". To date, 25 recovery plans have been presented, of which 18 have already been positively assessed by the Commission and 9 (including Italy) have benefited from the 13% down payment. MEPs are in fact reiterated that all subsequent payments every six months will depend on the correct achievement of the qualitative and quantitative objectives meticulously provided for in the operational agreements signed before payment, together with the subsidy and loan contracts. These documents were "discussed informally between the Commission and experts from the Member States" but, to date, they are shrouded in the most complete mystery, also in relation to the interest rate that was applied on the first 16 billion of the loan disbursed.
In this regard, the study confirms that the NgEu has substantially halved in its impact, since only Italy and Greece have requested all available loans (equal to 360 billion, but requested for 166).
Finally, two related distorting effects should be noted: when the investments of the NgEU end, the spending rule (growth not exceeding 0.5%) will return to bite ferociously and, at the same time, a country that wants to keep the level unchanged. of investments will be accused of fiscal expansion and therefore forced to cut them, just because those investments will no longer be financed by subsidies.
For the mere fact of having drunk more than the permitted ration, you will have to go back to dying of thirst. These are the EU rules that help keep the eurozone at the bottom of the more developed economic areas.
But unfortunately getting the math right and avoiding dreaming leads to being branded as " cold antipathy of the EU".
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/ecco-la-sorpresina-del-debito-nel-recovery-plan/ on Sat, 04 Sep 2021 09:10:47 +0000.