2023-12-21 00:21:47
The euro was born with fiscal rules so harsh that they were never applied. Bad tongues in Brussels say that the so-called Stability and Growth Pact did not generate either one or the other, because it was an equal straitjacket for everyone, whether its debt was 70% or 140% of GDP, whether its red tax of 4% or 10%.
It never worked and when they were breached and fines had to be imposed, they were so politically toxic and economically so counterproductive that they were forgotten. When the pandemic arrived, The European Commission put those tax rules in a drawer because its objectives were too ambitious, its operation too complex and its application subject to political decisions.
The Pact failed to meet its main objectives: it did not prevent debts from growing well above 60% in many countries, did not promote economic growth or investments to raise the growth potential of the economies and caused an investment delay with respect to China and the United States that the European economy still pays. Those rules provided for governments to reduce each year one-twentieth of the debt that exceeded 60% of GDP.
If it were applied now as it is and were forced to reduce each year one-twentieth of the debt that exceeds 60% of the Gross Product of Spain or France, they would have to make an annual adjustment of 2.6 points of GDP. Portugal more than 3%, Italy almost 4% and Greece 5.5%. With the reform it will be one point.
Last April the European Commission made a reform proposal that increased flexibility, took into account the situation of each country and sought to make the reduction of fiscal redundancies credible and possible. The Spanish Presidency of the Council of the EU began working on this proposal in July. Nobody expected that in six months they would reach an agreement and everyone already expected that in 2024 the previous useless regulations would be returned.
The Minister of Economy of Spain, Nadia Calviño, achieved the agreement between the 27 countries of the bloc. Photo: BLOOMBERG
But this Wednesday the Spanish Minister of Economy, Nadia Calviño (who will leave the government in weeks to assume the presidency of the European Investment Bank), managed to close a pact at 27.
The new rules
The reform will require governments to maintain a fiscal path that takes public debt below 60% of GDP and public deficit below 3%, but each country will do so based on bilateral agreements with the European Commission that They will take into account not only adjustments but also structural reforms.
These plans will last between four and seven years and will include reforms linked to fiscal objectives. And, unlike previous rules, they will be countercyclical. In exchange for loosening the straitjacket provided for in the original Stability Pact and making a prescription for each patient and not distributing the same dose of paracetamol to everyone, without fever, at 38 or 40 degrees, Brussels sets conditions: The public deficit must fall by 0.4% each year until it is below 3%.
The public debt of 1 point of GDP for countries whose debt exceeds 90% of GDP and 0.5 points for those whose debt is between 90% and 60% of GDP. Below 60% the reduction is not mandatory.
The other important condition is that net public spending (excluding debt service and spending on unemployment pensions) should not grow more than the medium-term growth rate of the economy. In return, Brussels points out where they are the most necessary investments: ecological and digital transition, social rights, security and defense, health and dependency.
A reduction that seems feasible as long as the economy grows according to forecasts. The European Commission forgets the idea of reducing public debt by one-twentieth of more than 60% each year and only demands an annual reduction of one point of Gross Product.
Germany accepts a reform that eliminates previous drastic debt reduction and softens the deficit adjustment. Eleven out of 27 countries currently have a public deficit greater than 3%. Thirteen out of 27 have a public debt above 60%. Only nine countries (Bulgaria, Denmark, Slovakia, Estonia, Ireland, Lithuania, Luxembourg, the Netherlands and Sweden) meet both criteria.
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