The most indebted countries in the European Union will have to reduce their GDP ratio at a rate of at least 1% each year. However, those that, even though they are above the maximum threshold of 60% contemplated in the Stability and Growth Pact, do not exceed 90%, will only have to do so at half an annual point during an adjustment period. That is the proposal that the Spanish presidency of the Council of the EU has put on the table this week for the Ministers of Economy and Finance to discuss this Thursday and Friday, with the hope of being able to definitively seal the reform of economic governance.
If this consensus proposal, advanced by Bloomberg this Tuesday and confirmed by this newspaper, were supported, the only thing missing would be the final negotiation between the capitals and the European Parliament to definitively bury the fiscal framework and the rules that have been used in recent decades. On January 1, 2024, the so-called ‘escape clauses’ of the Stability Pact will be reactivated, which were applied when the pandemic broke out and since then have allowed Member States to spend without restraints to maintain economic activity and employment. And everyone agrees on the urgency to avoid a very long period of uncertainty.
The latest Spanish proposal, the third in a few weeks, is much more severe than the original from the European Commission, since the hawks, led by an inflexible Germany, have left no alternative. The spirit of this reform is to have much more flexible, realistic, and efficient rules. The previous ones did not work, and everyone recognized them, but many preferred to continue in fiction. Now the process focuses on a spending rule, and on much more personalized paths, depending on the characteristics of each country. In exchange for more credible, applicable fines and sanctions, because the existing ones were never applied despite constant non-compliance on all sides.
The original idea remains in its skeleton, but the discussion that began articulated about flexibility and responsibility, between appropriation and gradual adjustment, between investments and stable accounts, has led to something more concrete: safeguards. Those that Germany demands in exchange for saying yes. He accepts the philosophy but demanded and has achieved guarantees that there will be annual adjustments.
This is very controversial. The great achievement of the original proposal was to overcome the obligation that suffocated countries had to reduce 1/20 of their debt each year, but the ‘no’ in Berlin has ended up imposing 1% for the most unbalanced members. In addition, there is a minimum adjustment of 0.5% in the deficit (something that had already managed to sneak in in April) and also, included in this latest Spanish proposal, another number: a fiscal cushion of 1.5% of GDP also for countries that comply. Minister Christian Lindner’s obsession is that the 3% deficit set by the Stability Pact is not an objective, but a maximum. Let no one hurry when there are fat cows because the thin ones always arrive.
But since every agreement implies balance, in the proposal there are concessions to the opposite side, to those who believe that the priority is investment and growth. To countries like Italy or France and Portugal, upset because they believe that too much has been given to the hawks. The Spanish proposal advocates giving special status to defense spending, as requested by the majority of members. Not so that spending on this matter does not count, but so that the case of non-compliance and excessive deficit procedures is a mitigating factor. And something similar will be tried with environmental investments. Because as these governments reproach, it makes no sense that now that the EU needs more investment than ever to compete in the world, they are penalized. Adjustments will have to be made, but they cannot be suicidal, they reiterate.
Furthermore, for this very reason, Calviño proposes that small deviations from the national spending ceiling be tolerated, which is the core of the new model. There are various options, from 0.25-0.50 annually to 0.5-0.75 in three years. But this is still open until Thursday-
