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What will change for Italy with the new EU Stability Pact. Roundabout

1 year ago babelfish

What will change for Italy with the new EU Stability Pact. Roundabout

Roundabout of opinions on the reform of the stability pact proposed by Brussels which changes the deficit and debt rules

The reform of the Stability Pact proposed by the EU will have a major impact on the way Italy's public finances have been managed. Brussels on the one hand softens its tone towards countries with high debt and making investments, but on the other asks for seriousness and to take the path of gradual debt reduction with customized repayment plans for each member state. Think hefty fines.

STABILITY PACT: WHAT IS CHANGING FOR OUR COUNTRY

The starting point for future negotiations is in the Commission's simulations. As reported by the AGI , the Italian GDP was 1,909 billion euros in 2022, a possible four-year plan would provide for an annual cut of 0.85%, i.e. 16 billion , with a seven-year plan the reduction is spread and the percentage drops to 0.45%, or 8.5 billion less per year. The logic of Brussels is that the tightening of 0.85% of GDP per year serves Italy to restore itself up to the point where the debt will begin to fall on its own, without new sacrifices. “I don't know these figures, the certain thing is that Italy will have to reduce the level of its debt. I believe that there is no Italian who is not aware of this, not only in the Government but in general because high debt has the difficulties that we all know – explained the European Commissioner for the Economy, Paolo Gentiloni -. What we can say is that when this reform is approved, Italy will be able to do it more gradually and it will also be able to do it in a way that Italy will decide. Is very important".

EXPENSIVE INFRINGEMENT PROCEDURES: CAN RUN UP TO €9.5 BILLION

Therefore, according to the reform of the stability pact, our country will be asked for a fiscal adjustment of 0.85% of GDP per year over 4 years or 0.45% of GDP over 7 years. The current debt rule, ie the reduction of one twentieth of debt exceeding the quota of 60% of GDP, would require Italy to make an effort of 4.5% of GDP per year. But it has never been applied, thanks to the so-called mitigating factors related to Juncker flexibility. In the event of an infringement procedure, our country would be called upon to pay fines of €950 million every six months, up to a maximum of €9.5 billion.

THE GREEN AND DIGITAL TRANSITION REQUIRES RESOURCES

Our European economy "is faced with massive investments and reforms to achieve the green and digital transitions, strengthen competitiveness and increase our industrial resilience, including in the defense sector", say European Commission Vice-President Valdis Dombrovskis and Commissioner Gentiloni . Nevertheless " credible strategies are needed for the consolidation of public finances , to reassure investors on the sustainability of the public debt and to facilitate the financing of public investments on the market". To allow the debt/GDP ratio to continue decreasing "Europe needs both greater fiscal prudence and a more dynamic economy". For this reason, the Commission's proposal aims at a more gradual but constant reduction of debt levels and at stimulating sustainable growth. “This would reassure the financial markets, especially in a context of tightening monetary policy”, conclude the Vice-President of the European Commission Valdis Dombrovskis and Commissioner Gentiloni.

THE COMMISSION'S PROPOSAL IS A SUMMARY OF SEVERAL REQUESTS

The European Commission's proposal is the synthesis of the requests of various countries: among the most indebted and the most rigorous in the North led by Germany and the Netherlands. As Luiss economist Valentina De Romanis writes in La Stampa , in recent days Finance Minister Christian Lindner had asked to maintain the same quantitative criteria for everyone in order to reduce the discretionary power of the Commission in the negotiations. Even the German requests were accepted only in part: in the request to keep the debt/GDP ratio at the end of the period below the initial level and that of the deficit/GDP which must fall by half a percentage point a year if it exceeds 3 per cent.

CORRESPONDENCE WITH THE ITALIAN DEF

The projection, as Il Sole 24 Ore writes, summarizes the possible impact of the return of EU fiscal rules on Italian economic policy after the long interlude of the emergency suspension. A line that finds correspondence in the Def being voted on in the Chambers and which for next year already foresees a powerful correction on the structural deficit with a cut of 0.8% of GDP. "The government's public finance program already complies with the " expenditure rule ", because for primary expenditure financed with national funds it indicates an increase of 0.9% in 2024, much lower than the change in nominal GDP and also below the dynamics of the potential product – reads the Sun -. The problem, however, is that the budget law does not fit into those figures, net of the extra coverage that can be found in the "foldings of accounts" fueled by the prudence of Rgs estimates".

STABILITY PACT: UNRESOLVED ISSUES AND THE IRRITATION OF THE MINISTER OF THE ECONOMY

The reform of the stability pact, and the flare-ups in interest rates, however, jeopardize the possibility of finding resources to make investments concrete. There is disappointment on the part of Economy Minister Giancarlo Giorgetti because the investments of the National Recovery Plan (Pnrr) are not exempt from calculating public accounts. "It is a step forward – said the minister, according to the reconstruction of the Corriere della Sera – but we had asked for the exclusion of investment expenses, including those typical of the National Recovery and Resilience Plan on digital and the green transition, from the calculation of the target expenses on which compliance with the parameters is measured. We acknowledge that this is not the case." Therefore, no favorable schemes for investments, green, military or linked to the Pnrr. “The revision of the Stability and Growth Pact – in fact – puts only a few countries under close observation, those with high debt and excessive macroeconomic imbalances – writes De Romanis in La Stampa -. Starting with Italy. For this reason, the government should carefully evaluate the risks deriving from this new procedure. This does not mean that the debt should not be cut or that the gap with our European partners in terms of macroeconomic indicators should not be reduced. In reverse. However, this cannot happen through a substantial strengthening of the external constraint on economic policies as would happen if the Commission's proposal were approved. The ultimate result would be that of an increase in anti-European tensions. Which we don't need."

BINI SMAGHI: WITH THE NEW STABILITY PACT, MEMBER STATES LOSE QUOTA OF TAX SOVEREIGNTY

According to Lorenzo Bini Smaghi, former member of the ECB board and current president of the French bank Société Générale, joined by Repubblica , the one of the EU Commission is "commissariat of budgetary policy of high-debt countries, especially Italy". And the negotiation phase will not be a downward path "unless governments agree to cede further fiscal sovereignty". Because the multi-year recovery paths "must be consistent with the technical trajectories provided by the Commission itself: if the country does not adapt, it is automatically put into excessive deficit procedure". The economist also points the finger at an alleged lack of transparency on the criteria that will be used by the Commission to indicate the trajectories of debt repayment. “ It is known that an analysis of debt sustainability will be carried out to decree the plausibility of the reduction – says Bini Smaghi -. But this instrument is very complex and opaque: it refers to the case of Greece in 2010-2012. In these conditions, it will be difficult for an Economy Minister to prepare the Def, which cannot be modified for four years even if the context changes: this increases the rigidity of the system. It is proposed to move from a system of flexible rules to one at the strict discretion of Brussels: everything will depend on the ability of governments to interact with the Commission. There is the risk of more tensions between the EU and the capitals – in particular Rome – because the evaluation criteria are not clear: the danger is to fuel resentment towards the EU institutions".

THE QUESTIONS FROM THE SOLE 24 ORE EDITORIALIST

Adriana Cerretelli, an expert on European affairs and former spokesperson for the former Minister of the Economy, Giovanni Tria, wrote for Sole 24 Ore: "In conclusion, flexibility and rigor measured hand in hand in order to be able to invest in an economic growth rich in financial stability. But that is not enough for Berlin & co. Therefore, it will still be a North-South battle. With one question: will the balancing act of the new Pact really allow Europe to overcome its global challenges when, between IRA and the like, the United States and China are flooding themselves with huge, immediate investments, without limits or too many rules? Perhaps, with its coffer of resources and a free EU state aid regime, Germany thinks it can do it alone: ​​a mistake, like others in the past".

This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/nuovo-patto-stabilita-cosa-cambia-italia/ on Thu, 27 Apr 2023 12:16:27 +0000.