Editorial of the “World”. The debate is open and it is crucial. By launching a consultation on Tuesday, October 19 on the relaxation of budgetary rules in the euro zone, the European Commission has initiated a project whose outcome is essential for the objective, still distant, of convergence of European economies.
This is the famous Stability and Growth Pact, adopted in 1997, to coordinate national budgetary policies and prevent the emergence of excessive budget deficits in the 19 countries that use the common currency. To this end, two rules have been set: a threshold of 3% of GDP not to be exceeded for the budget deficit and another of 60% for the debt.
The demand for a revision of these criteria is not new: in 2018, President Macron considered that this debate was relevant “From another century”. It was factually true; it is also economically, since the context of growth rates and interest rates has changed radically compared to the end of the 20th century.e century.
But, above all, the pandemic has given a new acuteness to this reflection. To allow the financing of the policy of “whatever the cost” of governments facing a risk of collapse of their economies, an exemption clause from the budgetary rules was urgently decided in 2020, then renewed twice. ; it is now necessary to fix a new frame for the 1er January 2023. However, in the meantime, the average debt of the euro zone has jumped by 15 points, to exceed 100% of GDP, while the average deficit will exceed 6% this year. If we are to believe the deficit reduction trajectories, in 2025, the vast majority of the 19 countries of the euro zone will not be able to comply with the pre-crisis criteria. When only a few respect the discipline, it becomes quite relative.
Squaring the circle
All the more so as the massive stimulus plans have integrated two issues that require gigantic public investments: climate change and digital transition. The question of financing these investments comes up against the rigidity of the budgetary rules before the crisis. Reducing divergences within the euro zone while investing massively in the future: this is, by the Commission’s own admission, squaring the circle.
An old divide is manifesting itself, that of the “frugal”, favorable to a return to budgetary orthodoxy, in the face of countries whose indebtedness has exploded the most and which are asking for an easing. Paris, whose credibility on this issue is weakened by its difficulties in carrying out structural reforms, has a strong ally: Mario Draghi. The Italian Prime Minister fears that the return of the budgetary straitjacket will shatter the momentum of renewed growth.
The time is strategic because, at the same time, negotiations are taking place in Berlin on the program contract of what will probably be the future German government coalition. One of the most hotly debated points relates precisely to the finance ministry, which is claimed by both the Greens and the very “frugal” Liberal Party, under the leadership of the future Social Democratic Chancellor Olaf Scholz. There too, two positions clash on the future of the Stability Pact. In the shadow of the debate initiated by the Commission, the outcome of the German negotiations is crucial for the euro zone. A budgetary framework is essential, but a return to rigidity would have catastrophic consequences.