Updated on Friday, 10 September 2021 – 18:16
The Eurogroup begins to address the renewal of an obsolete framework that does not favor the economies or allow surveillance or the fulfillment of fiscal targets
European Commissioner for Economic Affairs, Paolo Gentiloni
In the European Union there are quite a number of difficult debates, stagnant debates and barren debates, but there are few cases like the tax rules. The current ones, which some scholars have compared with the Cathedral of Vila (“the original structure is still recognizable, but all subsequent additions make it very difficult to perceive the consistency of the whole”) began after Maastricht (1992) and were defined mainly from the Stability and Growth Pact (1997). They meant well, but it didn’t work.
The idea of setting two demanding and fixed parameters, a maximum 3% deficit and a public debt level of 60%, sought transparency, simplicity and coordination between partners, but it soon proved unaffordable. The violations were constant and enforcing them became an impossible task in Brussels. Since then they have been expanding, patching and even hardening, but the result is even worse, a disaster that leaves everyone unhappy and has created permanent friction. They don’t work and it’s time to change them, but the fight to even define in which direction has become awkward, unpleasant, and surprisingly indefinite.
The theoretical discussion, at the political and academic level, has been open for years, since the debt and euro crisis. The countries most affected then, and which have once again suffered the strongest shocks with the pandemic, want the experience of the last decade, the lessons learned, to be used to never repeat the mistakes that led to austerity, and illustrate the recovery now achieved after unprecedented joint investments and almost limitless intervention measures. The most orthodox, with the usual suspects at the helm, accept that the structure must be given good workmanship, which has not withstood the passage of time well, but they disagree on the recipe and reiterate their mantra: “the new proposals they cannot endanger the fiscal sustainability of the States, the Eurozone or the EU as a whole “, they explain in a document signed by the Economy Ministers of eight partners, headed by the Netherlands, Finland and Austria. His message is clear: It is the reform, but not the relaxation of the rules.
Everyone understands the need for a new framework. On the one hand, because it is absurd and inefficient to maintain fiction. The situation is like the Soviet joke that in Moscow some pretended to work and others pretended to pay wages. Here many have been pretending for a long time that they are going to comply with the rules and the institutions that have effective mechanisms to achieve it. On the other, because there is an indisputable objective fact: the economic environment has changed. The fiscal rules were designed in an environment of reasonably low indebtedness and high interest rates., and the world of 2021 is characterized by 0% rates but wild debt levels, even before the pandemic.
The problem, philosophies and worldviews aside, is that this debate is combined with the present situation. The Stability Pact He has been in a coma since last year, when the pandemic forced him to activate the so-called escape clauses. The message from Brussels, accepted by all, was to spend everything that was necessary to keep the economies and the euro alive when the lockdowns forced a halt to activity. There was unanimity and there is still to keep it that way until the end of next year, but the pressure has been very strong for months. If the recovery is solid, say the hawks, it’s time to get back to normal. And the conversation about this hibernation cannot sprinkle that of reforms.
Finance ministers addressed the issue today in Slovenia during an informal Eurogroup. It’s just a first contact. The European Commission is the one that has to take the first step, but its responsible, Paolo Gentiloni, has indicated that they will not make a formal proposal until there is more consensus among the capitals. The south, the pigeons ask for speed, and the Orthodox reply that the content matters much more and that there is no rush. They accept the “simplifications and adaptations” demanded by Spain “that favor a coherent, transparent and better application of the rules, but only if the new proposals do not endanger fiscal sustainability”, says the document that EL MUNDO has had access to.
The positions have moved quite little. Madrid has been pressing for years not only on philosophy, but on formal aspects, to change the indirect systems of analysis of the economy (output gap, potential growth) that, according to the Ministry of Economy, they send the wrong photo and force Brussels to press where and when it does the most damage. But there is little appetite for delving into that line, and less when Eurozone debt is close to 100% on average. “The treaties require correcting excessive deficits,” reiterate the signatories of the common position.
The fight is going on for a long time. Some are expecting proposals from the Commission later this month or early October, but with the uncertainty of the German elections (which could bring a completely new and revolutionary air to the Ministry of Finance) and the French presidential elections next spring (during the presidency French Union) it is impossible for anything to be clear now. This debate, although it may seem like it, is not technical, it is not economic, and it will not be resolved by taking into account equations, ratios and rational logic.. It is something much deeper, more delicate, and nothing is more difficult in Europe than what affects taxes and taxation.
According to the criteria of
The Trust Project Learn more