Tuesday, November 28

Brussels launches the revision of the deficit and debt rules after the Covid crisis

The European Commissioner for the Economy, Paolo Gentiloni.

The irruption of the pandemic of Covid-19 and the strong economic contraction that caused in the Twenty-seven last year forced the European Commission to freeze the debate on the reform of the Stability and Growth Pact – which establishes limit values a public deficit of 3% of GDP and one public debt 60%– already put budget rules on hold until 2023. With the economic recovery underway and the bulk of countries returning to their pre-covid levels, the European Commission reactivates its old plans and relaunches the review with the aim of drawing conclusions “in time” for 2023, when they will be applied again tax rules.

“We cannot be satisfied with the rebound of the economies (…) We need changes because none of the problems that we put on the table when we launched the review are irrelevant. On the contrary, some of the problems are more pressing ”, has recognized the commissioner for economic affairs, Paolo Gentiloni, during the presentation. Among the unresolved vulnerabilities, and which the Covid-19 crisis has aggravated, Brussels highlights an increase in inequalities and macroeconomic imbalances as well as a high public debt that has skyrocketed as a result of the enormous fiscal support from governments and that, like the public deficit will be above pre-pandemic levels in the coming years.

“Strong countercyclical fiscal support, estimated at 19% of GDP between 2020 and 2022, has been essential to sustain our health systems and keep our workers employed. We did the right thing but it has also led to higher debt levels, 100% of the euro zone average ”, explained the Italian who considers it“ key ”to collectively reflect on how fiscal rules should be in order to guarantee a gradual reduction of debt. , realistic and compatible with a sustainable growth strategy, without anyone seeing the ghost of austerity. A battle in which the North and South of Europe do not walk hand in hand and which generates strong tensions.

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Consultation until the end of the year

The document prepared by the Commission, with 11 questions, does not include specific proposals or mention what to do with the two great rules of the pact, but it does offer some clues on the path that the governments of the Eurozone must follow to achieve “the squaring of the circle. ”In the post-pandemic era. That is, “reduce public debt and boost investment,” said the vice president, the Latvian Valdis Domvrovskis. Brussels recognizes that reducing “high and divergent public debt ratios in a sustainable and growth-friendly way will be a key challenge after the crisis”, as well as avoiding persistent fiscal differences between Member States, preserving favorable financing conditions for public and private sectors and avoid episodes of stress in the markets.

Brussels also recommends a reflection on the role of governance when it comes to incentivize investments. “Encouraging green, digital and resilience-enhancing public investment deserves special attention given the long-term challenges facing our economy,” they argue, without specifying whether this means exclude from public spending these investments, as some countries claim. “Clearly what we can say is that the golden clause it is one of the options that are being considered ”, said the Latvian politician, also underlining the importance of simplifying the rules of the Pact. “We need simpler rules to have indicators that can be better observed.”

The next step will be a public consultation in which all interested parties can present their position. “We want to listen to opinions and ideas and build a consensus and that there is an ownership for an effective economic surveillance,” says Dombrovskis, who believes that “fiscal rules will only work if everyone agrees and respects them,” he admits. This public consultation will be extended Until december 31. The next phase will come in the first quarter of 2022. It will be then when the Community Executive presents its own guidelines to the Member States on budgetary policy for 2023 to help them in the preparation of their plans. Only later will proposals come to reform the fiscal rules with the aim of reaching a consensus before deactivating the escape clause of the Stability and Growth Pact.

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