MIL-OSI Economics: The fight for the debt pact begins

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Source: Breitling Energy

Headline: The fight for the debt pact begins

Read Time:3 Minute, 34 Second

Due to Corona, the deficit and debt rules are suspended. They should apply again from 2023 – but how? EU states are positioning themselves for a fundamental debate on budgetary policy: stay relaxed or become more solid?

So much freedom thanks to Corona: EU countries are still allowed to operate for one and a half years without taking into account the strict rules for solid housekeeping. The EU Commission will not put it back into force before 2023 so as not to endanger the reconstruction after the pandemic. And then?

Austria’s Finance Minister Gernot Blümel (ÖVP) fears that some governments want to relax the pact. At the meeting with his EU colleagues in Portugal in June, he complained: “We have heard a lot of lectures where one can expect that the debate on the European Stability Mechanism should go in a direction where debt criteria should almost be abolished, and that is not the case the approval of Austria and many other countries. “That is why the Christian Democrat Blümel wrote a letter to Scandinavians, Balts, Dutch, and Germans. He wants to forge an alliance against the plasticizers. He does not name names, but some southerners should feel addressed – and France, where the government and experts are critical of the debt rules.

Simplify rules?

EU Economic Commissioner Paolo Gentiloni is also a friend of relaxation. He himself declared earlier this year: “We have to discuss how we can make these rules simpler and more growth-friendly, and how we really ensure that public debt is gradually reduced – that remains a goal of our common rules.” These were set in the 1990s with clear upper limits: annual budget deficit not exceeding three percent of gross domestic product, debt not exceeding 60 percent. Because the members of the common currency do not pursue a common financial and economic policy, these guidelines should instead prevent one state from doing business at the expense of others. In Germany, the reference to the so-called Maastricht criteria should make it easier for euro critics to say goodbye to the D-Mark.

Debt levels can hardly be controlled

In the event of non-compliance, there is a risk of sanctions; in fact, they were never imposed. The economic expert of the Christian Democratic EPP Group in the European Parliament, Markus Ferber (CSU), wants to take better preventive action in the future: “There are a number of suggestions that we should not only look at budgetary conduct in retrospect but also currently in the context of budget implementation Things that I like very much – because talking about spilled milk afterward is really no fun. “Currently only three out of 27 EU countries comply with the deficit criterion, namely Bulgaria, Denmark and Sweden. Because of the massive state aid against the consequences of the Corona, the debts have increased dramatically. The result: 14 countries are breaking the debt limit, including Germany. In Greece (209 percent) and Italy (160 percent) the debt levels seem to be barely controllable, in Portugal, Spain, France, Belgium, and Cyprus they are twice as high as planned.

Debate after the federal election

Green politicians are calling for the Maastricht criteria to be thrown overboard. In any case, MEP Damian Boeselager (Volt), who belongs to the Green Group, does not believe in tightening the screws now: “Tightening the stability pact rules now would be counterproductive because it would increase inequalities between poor and rich countries. It would probably destabilize politically and not significantly improve the debt level. But we have to build a common European fiscal architecture so that we can break this vicious circle of investment problems and high-interest rates.

“How can the pact ensure more stability in the future – that is the crucial question for Guntram Wolff from the Brussels think tank Bruegel. His suggestion: “With an expenditure rule, the increases in expenditure would be oriented towards the growth of the real gross domestic product. In this respect, one would prevent certain countries from carrying out massive increases in their expenditure without counter-financing them through taxes.”In autumn, the EU Commission wants to submit its proposals for reform to the member states. As soon as the race for the Chancellery is decided in Berlin, the debate about the future of the pact should pick up speed.

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