EU fiscal rules require more than technical adjustments

In Freud’s psychoanalysis, neurotic behavior is a manifestation of suppressed emotions. In the EU’s obsession with written rules, it is politics that is suppressed.This is why New debate The EU’s fiscal rules will become difficult.

Current fiscal framework No one is satisfied. Deficit countries find that their discipline is too strict to promote economic growth that can improve public finances. Surplus countries see the high debts of their troubled neighbors and conclude that it is not sufficiently binding. These rules are too complicated to be communicated to voters, weakening their acceptance of democracy.

The least negative thing anyone has to say—especially the German Finance Minister, and possibly the next Prime Minister Olaf Schultz—is that these rules did not prevent the government from saving the economy from disaster during the Covid lockdown. It may be a dictionary definition with a curse of faint praise.

As a result, major changes should have taken place long ago, but few people have high hopes for a consensus on what form should be taken. Therefore, the temptation to mend at the edge. However, the problem is that the economic environment has changed in at least two ways.

First, the (correct) response to the pandemic caused a surge in the number of the public Debt to GDP ratioSecond, the EU’s priorities require a substantial increase in investment in order to transition to a fully digital economy with net zero carbon emissions and restore broad opportunities for prosperity.

The current framework does not reflect these changes. According to today’s regulations, governments with a debt-to-GDP ratio of more than 60% should reduce the excess by one-twentieth every year. This integration speed will seriously drag down growth, which is likely to undermine its own goals.

The scale of additional public investment required is incompatible with the prohibition against excessive deficits, unless it is funded by drastic spending cuts or tax increases elsewhere. These can also damage growth and weaken political support for green and digital transformation.

Therefore, without reform, we will not return to a situation where the rules are at least binding. The most indebted countries will not reduce their debts at the prescribed rate. The government will borrow money for investment, so as not to fall behind in the economic transformation, and the deficit limit is damned. Fiscal rules will become a balancing item in political calculations.

Such observations are largely in common. Therefore, some good technical advice has been put forward, including those from institutions whose concern for sustainable public finances is beyond reproach.

European Finance Committee recommend Taking into account the difficult starting point of some countries, the path of debt reduction for specific countries. Klaus Regling, Managing Director of the European Stability Mechanism think The 60% ceiling of public debt as a share of GDP is “no longer relevant” and should be raised.Bruegel Proposed the “Green Golden Rule” Public investment spending can be exempt from fiscal restrictions.

These are all useful reforms. But their adoption does not depend on their usefulness. The profound challenge of EU fiscal rules is that they replace political solutions with technological solutions.

In a multinational group with multiple levels of sovereignty, it is tempting to try to eliminate politics altogether. But this is also in vain. Like Freud’s repressed emotions, repressed politics will not disappear, but will lead to other dysfunctions—including the ability of rules to satisfy everyone.

The obstacle to good EU fiscal governance is not bad rules, but bad politics.In particular, the member states lack common political ownership of economic policies-despite Treaty obligations “Treat their economic policies as a matter of common concern”-leading to mutual mistrust. Countries with weaker finances do not trust the motives of powerful countries, and powerful countries, in turn, do not trust the ability of weak countries to manage the economy.

However, the politics of the new post-pandemic recovery fund contains signs of hope.Apart from Hungary and Poland, They did not trigger the old suspicion between strong and weak economies. Quite the opposite. It is still too early, but if this process is seen as a success, it will prove that Europe’s North and South can trust each other to achieve common economic goals. Compared with any technological change, this has a greater impact on fiscal governance.

martin.sandbu@ft.com

Source link

Leave a Reply

Your email address will not be published. Required fields are marked *