2023-04-28 23:00:42
The European Commission has presented this week its proposal for new rules for the economic governance of the European Union (EU). The reform is essential because on December 31, 2023, the suspension of the deficit and debt rules of the stability pact ends, a relaxation adopted to face the crisis generated by the pandemic and extended by the impact of the war in Ukraine. The proposal, which in practice represents a more flexible version of previous austerity policies, includes quantitative targets, such as a minimum annual budget adjustment of 0.5% of gross domestic product (GDP) for countries that exceed the public deficit limit of 3% of GDPand multi-year adjustment programs (but extended to horizons of 4 to 7 years) for sustainably reduce public debt up to a limit of 60% of GDP. The approval of the reform will require arduous negotiations, since Germany and other frugal countries demand more rigorous adjustments, while Spain, France, Italy and other states believe that the proposal is a starting point that requires much more flexibility.
The Spanish government has wisely decided to take advantage of its greater economic growth and the investment facilitated by European Next Generation funds to bring forward the reduction of the deficit to 3% of GDP by 2024 and circumvent the reinforced budget discipline mechanism. But the objectives of the European Commission will not be easy to achieve: the best expectations of growth and tax collection should be met to achieve them and at the same time maintain the huge public investments that the EU countries have committed to defense, green transition, impacts of climate change and industrial and technological aid to counter the massive US and Chinese subsidies to their companies. The European ‘think tank’ Bruegel calculates that defense policy alone will require additional annual public spending in EU countries equivalent to 0.7% of GDP on average and that investments in the green transition will require another additional annual public investment from 0.6% to 1.8% of GDP. To this we must add public funds to support the industry and recover from technological backwardness.
EuropeG report
Las austerity policies of the past decade had a high cost: low growth and investment, technological lag and a deterioration of public services and rising inequality that has fueled the discontent vote and the growth of the far right and the populist left. But at the same time, the fact that expansive spending policies have proven more effective in crisis contexts than austerity at all costs does not imply that they are viable indefinitely. The European Commission’s proposal should still be adjustable in the sense indicated by the recommendations of the EuropeG think-tank, ‘Towards a new fiscal governance in the eurozone’, prepared by the economist Paul De Grauwe of the London School of Economics and recently presented at the Círculo de Economía de Barcelona. The report recommended guaranteeing the sustainability of public debt in the long term but at the same time differentiate the surveillance rules on current spending and the prioritization of public investment national and European. Spain’s European presidency will come at a key moment in the debate.
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