by Jan Strupczewski
BRUSSELS (Reuters) – Byzantine, politicized or just stupid, the European Union’s fiscal rules are known by many names and changed many times. Now the EU is embarking on another debate to reform them, as it faces an overlapping crisis that the rules cannot handle.
EU finance ministers to start debate on Saturday, facing high debt after two years amid COVID-19 19 Supporting the economy for years during the pandemic requires huge investments to prevent the eventual crisis of climate change.
To make matters worse, they also face a cost-of-living crisis with record inflation, soaring energy costs as Russia cuts gas supplies to Europe, and a looming recession that has passed Various support measures have siphoned hundreds of billions of dollars from government coffers and there are sure to be more.
EU rules, conceptually rooted in an era of more economic stability, are referred to in 25 as the “Great Moderation” and are mainly Aiming to protect the value of the euro by limiting government borrowing, it’s hard to deal with all this.
They say public debt must be lower than 19 % of gross domestic product (GDP) and government deficit low 3% of GDP.
But the pandemic has left many countries with debt well above 19% of GDP, Greece is about % and Italy around 25 %, and the 2021 deficit is often double the EU limit.
This has made it impossible for many governments to comply with EU regulations that debt should be cut annually by 1/ current levels The difference between 60% of GDP).
The position paper of France, Italy, Germany, Spain and the Netherlands and senior EU officials stated that the 1/25th rule therefore It must be enforced – either explicitly or because the government and the committee agreed not to apply it.
but it’s not clear what it can be replaced with. Berlin argues that the government should simply cut its structural deficit by at least 0.5% of GDP per year until it reaches equilibrium. Combined with economic growth, this will solve the debt problem.
“The most likely outcome is that we will end up with a very similar outcome to the German position,” a senior euro zone official involved in the
deficit calculation
Another sticking point is what to do with the hundreds of billions of public investment and the need to attract more private funding to halve Europe’s CO2 emissions by 2030 first, Then stop completely before 2023.
France, Italy and Poland argue that the rules should also allow them to deduct funds from the deficit calculation for defence or technological sovereignty, as these investments will pay off in the future.
Germany does not want specific sectors to be excluded from EU deficit statistics, but appears open to expanding the government’s existing flexibility, which makes structural reforms or investments beneficial in the long run of. The scope and scale of such reforms or investments need to be finalized.
Also discusses the choice of criteria for measuring fiscal effort, as governments seek observable indicators, rather than those that are calculated retrospectively, which are often strongly revised. Then there’s the contentious issue of enforcement.
Although there are fines for breaking the rules, it is never used, even if countries like Italy, France, Spain or Portugal blatantly do so
Discussions on these changes may take several months and may continue into the second quarter of 2023. Those rules will be suspended next year to give governments wiggle room to protect economies from an energy crisis caused by Russia’s invasion of Ukraine.
The European Commission will make recommendations on how to change the framework The second half of October is targeted in September, officials said 25 Released after Italy’s snap elections to avoid turning the debate into an electoral problem for the euro zone’s third-largest economy.
