Daniel Gros: “The EU Pact will not change. Draghi will not exist in the future, the debt will”

Daniel Gros: “The EU Pact will not change. Draghi will not exist in the future, the debt will”
Daniel Gros: “The EU Pact will not change. Draghi will not exist in the future, the debt will”

“The convergence of Italian-French points of view was there from before, nothing new. But proposing to change the rules of the Stability Pact on the day the German coalition says the opposite does not seem a good omen ”. Daniel Gros belittles the political and historical significance of the Quirinal Treaty signed this morning in Rome by Mario Draghi and Emmanuel Macron. According to the German economist, from the pro-austerity school, the new agreement is not destined to be very effective: “They are wrong to focus on the revision of the rules: it will not happen”. Nothing changes even with Draghi? “Draghi has an excellent reputation – Gros tells Huffpost – but he is not forever and his majority is based on a very expansive fiscal policy. From the series: let’s spend today for the future. But in the future Draghi will not exist, there will be debt ”.

The German newspaper Handelsblatt considers the Quirinal Treaty between Italy and France as a challenge to Germany over the Stability Pact. Is that so?

A friendship treaty is a long-term agreement: it is wrong to start with obvious special interests, as Italy’s can be in revising the rules on deficits and debt. Not a good start. The Franco-German axis worked because Berlin and Paris often had different ideas, but then they sought compromises, so they reached an agreement. If you start out to defend a particular interest, it doesn’t seem to me that it works well.

But sorry, France is on the same side as Italy in the consultation to review the Stability Pact now suspended due to a pandemic.

I don’t think it’s a vital interest for France. And I repeat: the Quirinal Treaty is one thing, the interest of Italy is quite another and it is not good to start by hoping for a change that is difficult to achieve.

So the Treaty between Paris and Rome is not scary in Berlin.

The convergence of the Italian-French points of view was there from before, it is nothing new. And then proposing to change the rules of the Stability Pact on the day the German coalition says the opposite does not seem a good omen.

So, in your opinion, how will the consultation on the Stability Pact end, which should give birth to a conclusion by 2023, when the old rules will come back into force?

An exception will be made for green investments, but everything else will remain intact.

So the thresholds of 3 per cent of the deficit and of 60 per cent of the debt in relation to the GDP will not change even with Draghi at the helm of the Italian government?

Draghi has an excellent reputation, but he is not forever and his majority rests on a very expansive fiscal policy. From the series: let’s spend today for the future. But in the future Draghi will not exist, the debt will.

You speak Italian and are very attentive to our political debate: the name of Draghi circulates for the succession to Mattarella. Don’t you even see him at the Quirinale in the future?

This I don’t know …

Excuse me, however, from the reasoning that Draghi made this morning in conference with Macron, a weak point of the German positions emerges: Berlin aims at a balanced budget as soon as possible without considering that the German government will also have to spend not only on the ecological transition but also for digital.

Yes, but digital is cheap in terms of fixed investments, not even a percentage point of GDP. You can’t justify a 5 percent deficit or a debt of 100/150 percent of GDP with digital investments that rely on public debt for a maximum of 5 percent.

But perhaps something can be done: slow down the pace of debt reduction, which European rules today set at one twentieth every year.

We need to look ahead: in the coming years, nominal GDP will grow at a faster rate than in the past and this helps to reduce debt. Even the rate of one twentieth a year becomes easier to sustain with the recovery to come.

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