What is a recipe for getting into debt without limits? The two leading politicians from France and Italy provide possible guidance. When you pile up supposedly good debts, you want to remove the previous obstacles.
Emmanuel Macron and Mario Draghi want to make it easier to get into debt in the euro area.
France and Italy leave nothing to be desired. Former German Chancellor Angela Merkel has barely vacated her office when the two neighboring states are already making it clear how they imagine a Europe in the post-Merkel era. In a common Opinion in the “Financial Times” French President Emmanuel Macron and Italian Prime Minister Mario Draghi outline their preferences. These can be summarized in four words: more freedom when spending money.
Demand for more room for maneuver
Specifically, it is about the future structure of the Stability and Growth Pact. The pact imposes certain rules on the euro countries so that the deficits and debts of the states remain halfway under control. The countries have to limit their deficit to 3 percent and their indebtedness to 60 percent of economic power. Due to the pandemic and the associated financial requirements, the rules have been temporarily suspended. It remains unclear whether and how the pact will ever come into force again.
In France and Italy one does not long for the old corset. Rather, they want as much national leeway as possible in financial policy in the future. Pro forma, Macron and Draghi state in their article that the EU states would have to reduce their indebtedness. Apart from that, the article reads like an argumentation why financial policy moderation is not really necessary. Joint investment is demanded and warned against “unprofitable fiscal adjustments”.
The two politicians think little of the previous fiscal rules. You write: “We need more room for maneuver and enough key spending for the future in order to secure our sovereignty.” Therefore, if a country were to take on debt in order to make future-oriented investments, then such debts would have to be favored by the fiscal rules. To put it more simply: there is good debt and bad debt. And when it comes to accumulating good debt, restrictive rules should be removed.
Olaf Scholz is challenged
Such special treatment is extremely dangerous. Nobody knows in advance whether an investment will bring a high social return or not – least of all, the state knows. But if, for example, all government spending that has anything to do with climate protection or digitization are immediately excluded from the fiscal rules, this becomes a free pass to frivolous debt. Because any reference to the climate or to digitization will be able to be established for every item of expenditure.
The fact that people in France and Italy do not take financial discipline too seriously is nothing new. So far, however, such Latin casualness in the EU has met with resistance from countries that are demanding more consideration for future generations, i.e. more sustainability, not only in climate but also in financial policy. Above all, this includes Germany. One of the most important tasks of the new government in Berlin in terms of European policy will be not to be lulled by the seductive sounds of Paris and Rome.
Macron and Draghi are right about one point: the Stability and Growth Pact, garnished with all sorts of exceptional rules, is far too complex and needs reform. However, the following is also undisputed: A monetary union without a common financial policy can only work if the members adhere to common rules when spending money. These rules are now very holey. Simply making the holes even bigger, as Macron and Draghi suggest, is hardly the right way to help the euro area become more stable.