The EU reloads the bomb of the Stability Pact: Italy is playing for the recovery

The EU reloads the bomb of the Stability Pact: Italy is playing for the recovery
The EU reloads the bomb of the Stability Pact: Italy is playing for the recovery

Put in a corner by the pandemic, the Stability Pact is once again ready to go back to what it always was: one of the most divisive issues within the European Union on the mechanism for regulating public finances. On the re-proposal or not of the accounting parameters concerning debt and deficit, suspended due to Covid, discussions at the Eurogroup begin today (for Italy, the Minister of the Economy, Daniele Franco), to be followed tomorrow by the appendix of the Ecofin.

These are delicate events, to the point that yesterday a senior EU official immediately felt obliged to get his hands on, specifying that the Commission has decided to structure the debate starting from the ends, and not from the means. The ministers will therefore discuss not on the “technical” or “numerical” aspects of the Two Pack and the Six Pack, but, precisely, on the “objectives” that Europe intends to achieve.

The matter is in fact to be taken with a grain of salt, especially at a time when the debt of many countries has exploded following the measures taken to counter the deep recessive effects caused by the virus. In Italy, the debt broke through the wall of 2,700 billion euros in August, represents over 156% of GDP and will remain sidereally far from the 60% threshold given that this year’s growth of around 6% will guarantee, whatever the case may be, only a slight filing, even taking into account the expansionary maneuver of 30 billion decided by the government. “Nobody believes that blind application of the 60% rule is the right way to go,” another European official said a few days ago. Even the economists of the ESM bailout fund are pushing to raise the maximum debt ceiling to 100%, while keeping the deficit limit at 3%.

The focal point, however, is another. It concerns how, within the Pact, the debt repayment path will be articulated (according to the current rules, the reduction must be one twentieth per year) towards sustainable levels. Because it is on this aspect that a new fault is likely to open up between the European partners. If Prime Minister Mario Draghi said there was “more than a doubt” about whether the EU rules on public finance have worked well, especially during the recession, there are those, like the Netherlands and Austria, but also the vice president Commission Latvian Valdis Dombrovskis, thinks the opposite and believes that the flexibility already provided by the framework itself, with the 2015 Juncker Commission communication on investment flexibilities, is sufficient.

Many are convinced that the Pact needs to be reformulated. After the steps forward in the sign of solidarity and cohesion made with the launch of the Recovery Fund, the revival of a model linked to schemes that refer to the strict controls of the times of austerity would mean taking a leap backwards. All the more so if we consider that too strong a squeeze on public finances could kill the post-Covid recovery in the bud.

The challenge that the Eurogroup must face is therefore that of repositioning the Pact in such a way as to favor pro-cyclical fiscal policies capable, through the improvement of national wealth, also to undermine the mountain of debt. There is time. And the blocking of the ESM reform, with which the rules regarding the loan lines to be granted to countries in difficulty will be changed, gives even more space to find an agreement that represents a turning point for Europe.

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