How will EU debt constraints change?
Facts, numbers and scenarios on EU constraints. The article by Tino Oldani for Italy Today
Good news comes from Brussels for Italy and France, as well as for half a dozen EU countries with public debt above 100% of GDP: the EU fiscal rules of the Stability and Growth Pact (3% deficit / GDP; 60% debt / GDP), suspended in March 2020 due to the pandemic, will not be restored starting from January 1, 2023, as planned, but suspended for another year. This was revealed by the Politico website, which says it has read the 11-page draft with the guidelines that the EU Commission intends to apply. Therefore, no return to old-fashioned austerity, which caused enormous damage in the years before the pandemic, especially in the countries of Southern Europe. The new line of the EU Commission will be that of supervised flexibility, which allows each EU country to make the investments necessary for the recovery and implementation of the Green Deal, objectives considered strategic, together with the containment of inflation and the cost of energy. .
If confirmed, this approach by the EU Commission, prudent and common sense, could extinguish the conflicts between the frugal countries of the North and the indebted countries of Southern Europe on the restoration of austerity in ten months. A bitter debate, which began last summer and to be concluded in theory within the first months of this year, but still open: on the one hand the countries of the North, Germany in the lead, lined up for the restoration of the fiscal rules of austerity; on the other, those of the South, led by France and Italy, in favor of a revision of the constraints set 30 years ago by the Maastricht Treaty.
Faced with the lack of an agreement between the two blocs, it was becoming impossible for the EU Commission to indicate, by spring, the guidelines for drawing up the national forecast budgets for 2023. Not only that. Since the ongoing debate, according to initial forecasts, should have been concluded by next summer, notes Politico, "the Commission sees no reason to fully enforce the debt rules of the Stability and Growth Pact when they could change soon anyway" . Hence the turning point, which postpones everything to next year. A classic when politics is in trouble.
The document of the EU Commission acknowledges that during the pandemic EU countries "spent a lot to prevent mass unemployment and business failures, pushing up debt levels across Europe". The countries of the South all have a national debt exceeding 100% of GDP: Greece 200.7%, Italy 155.3%, Portugal 130.5%, Spain 121.8%, France 116.0%. In the North, only Belgium is above one hundred, with a debt equal to 111.4% of GDP, while Germany does not go beyond 69.4%. Overall, however, the average debt of the EU-27 (90.1%) appears to be quite high, while the debt of the 19 euro area countries reaches 97.7% of GDP. Faced with the contrasts between North and South, the document shows off balance: “Pending the review of economic governance, the Commission will not apply the benchmark for debt reduction, as it is currently formulated. However, it will continue to monitor the debt trend, in line with the requirements of the Maastricht Treaty ”.
In support of this orientation, Politico recalls that Paolo Gentiloni, EU Commissioner for the Economy, declared at a recent conference at Bocconi: «A decade ago we saw the negative effects of a tightening of austerity measures done too soon. I believe the rules should now be reformed to ensure that high debt levels are lowered more gradually and realistically, without stifling growth. ' Basically, in Brussels it is openly admitted that keeping the 60% constraint as the maximum limit of the national debt is out of time, as is the insane rule that requires a return of 5% per year for countries above 60%. . For this reason, the Commission promises EU countries concerted flexibility on the level of debt, so as to allow investments for recovery and those for green projects envisaged by the EU Green Deal . An elasticity that is all the more necessary in the face of the geopolitical framework, dominated by the tensions between Russia and Ukraine, and the surge in inflation and the cost of energy, which are hindering the growth of the eurozone's GDP.
Greater severity will instead be reserved for the application of the 3% deficit / GDP limit, in order to contain current expenses. In any case, EU countries should not confuse leniency with weakness: "The EU Commission will retain the power to open an excessive deficit procedure based on debt if the debt is not sufficiently reduced".
It now remains to be seen whether Germany will give the green light to this line. In Berlin, the new finance minister is the liberal Christian Lindner, who in an interview with Repubblica boasted that he is ordoliberal, a pro-austerity hawk, but also very interested in making the new investments that Germany needs. So, first he goes the hawk: "I don't think that the pooling of risks and the softening of the common rules make progress." But then he dresses up as a dove: "Of course, we will need to find ways to improve the Stability Pact, making sure that the abatement of debts does not take away margins for investments in advanced technologies, environmental protection and other important priorities". As it happens, Lindner says that Germany has just transferred 60 billion, allocated during the pandemic, to a new fund for the environment and transition, "money to spend, but for the hydrogen network, the decarbonisation of industry and the brake on energy price increases ". In short, Germany serves its interests. Well if Italy and France do the same.
Article published on ItaliaOggi
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/come-cambieranno-i-vincoli-ue-sul-debito/ on Sun, 13 Feb 2022 06:37:18 +0000.