With the storage of the Fiscal Compact & Co, the European fiscal policy comes of age. You take your responsibilities for debt sustainability and crisis prevention and management as you already did with the pandemic and now you have to do with the energy crisis, Putin's war and the resulting inflation. She was now. And let's hope national governments don't do too much damage before it's approved by the Council and implemented in 2024.
Let us be congratulated that the lessons of recent crises have been heeded: from post global financial crisis mistakes to the excellent response of Recovery and resilience plans after the pandemic. Eyes have been opened to the very different levels of public debt that require national paths for the descent of the boulder. And there is consciousness of the need to facilitate investment for common priorities, primarily energy security and the digital transition. The latter are part of the mandate of a common core capability that is still missing.
The economic governance is changing, the medium-term National Plans are coming
Let's see the positive aspects of it that are still general and we know full well that the devil is in the details. Firstly, i Medium-term national plans which will include budget, investment and reforms.
With its equally medium-term guidelines, the Commission will be able to aim for a European fiscal stance, overcoming the lack of coordination that has caused Europe to lose hundreds of billions of euros in growth. The obscure network of structural indicators based on unobservable variables gives way to a simple rule of net primary expenditure, i.e. without interest payments and unemployment benefits. The government and parliament directly exercise their control over this expenditure. We expect the growth forecast of this spending to be based on consensus growth projections for thepotential output, as in Nadef, and no longer on the calculation of the output gap. Because both the debt adjustment path and the monitoring of compliance with the agreements by the Commission will be based on this expenditure.
The Commission's proposal on governance: these are the new instruments of the Stability Pact
Il containment of public debt it will be necessary due to the anti-inflationary monetary policy of raising interest rates and the return of the risk premium on sovereign debt with the end of QE. There's the biggest news on debt management. Based on modern methodologies for stochastic debt sustainability analysis, the Commission will establish the adjustment path for the countries with the greatest debt burden "in a realistic, gradual and continuous way". It is a decisive step forward for the economic governance of the Commission itself: from guardianship of the rule book to modern risk management. As with monetary policy, the reference rules are in the Treaties, but decisions will be made by expert humans, not pre-programmed robots with fixed rules.
Based on the medium-term national plan, a country will be able to negotiate with the Commission thetime extension for debt reduction, committing to reforms and investments that increase debt sustainability by increasing the country's productivity and potential product, and that fit into European priorities such as energy.
Precisely because the debt adjustment plan results from the dialogue between the member country and the Commission, the opening of the excessive debt procedureor it will be activated if the conditions decided together are not respected.
There is talk of reputational sanctions, but what matters is that i European funding, including the structural funds and those relating to the Recovery and Resilience Plans, may be suspended if the country has not taken the necessary measures to correct the excessive deficit.
The limit at 3% of the deficit/GDP ratio it remains current to contain the deficit bias of politicians, particularly important in Italy for its two symmetries - one on the far right and the other on the far left - adept at budget slippage. The Financial Times calculated after the Liz Truss "tax event", the moron risk premium* which weighed on bond issues. The 3% rule and the Commission's attention to the quality of spending protect us from that risk.
The Commission writes that it wants to enhance the preventive use of the MIP, Macroeconomic Imbalances Procedure, but we have already heard it too many times without consequences. And it wants to modulate post-programme adjustment/financial assistance surveillance with risk assessment. National Fiscal Boards will have greater responsibilities.
We know that a Commission Communication is backed by a substantial consensus of the member countries. But in the work that opens to define the details, the different national points of view will be able to re-emerge. We know the German position to be quite different. Here Putin's war can help the European Union. Geopolitics has made its way into economic decisions and will stay there for some time. There Germany it does not intend to repeat the submission made to Russia for energy imports with submission to China for exports. Nor the United States they are a stable alternative until the long wave of Buy American is exhausted. As evidenced by the subsidies for electric cars only for American products.
Recession to reduce inflation? Yes, but it is necessary to invest in innovative sectors to grow
Globalization is not over, we hope, but with a Europe that needs to rely more on its growth for the demands on its businesses, Germany's historic pressure for fiscal austerity is abating. While in the past Germany could ignore the lack of demand in Europe by exporting to China, it now knows that thestrategic autonomy of Europe it's an existential goal, not just for energy and defense.
One day there will be a central European capability for joint investment and crisis response. For now it's up to national budgetary and structural policies, which are essential to offset the recession, which is the only tool available to central banks to reduce inflation. It is not a question of nullifying the efforts of central banks by offsetting all increases in energy from fossil sources. We need to protect the most fragile, but we need to keep the price signal to encourage investment in renewables also by households, as well as businesses and the government. And it is necessary to invest for the diffusion of digital innovation, energy autonomy and strategic autonomy in the High Tech industry. These are public expenditures that increase total productivity and allow inflation to be reduced without interrupting growth.
