Stability Pact suspended also in 2023. At least in part. The European Commission decided on Wednesday, to prevent EU rules, added to the effects of the Russia-Ukraine war, from leading the continent into a new recession. The rules were already frozen until the end of 2022 to deal with the pandemic.
Stability Pact suspended in the part concerning the debt
In reality, from XNUMX January next year the agreement will formally come back into force, but in fact it will be a suspended stability pact, because the rule which provides for a very severe procedure for those who exceed the public debt parameter.
The entire suspension will be evaluated in the spring
Not only. In presenting the Economic guidelines for 2023, Vladis Dombovskis, Vice-President of the Commission, and Paolo Gentiloni, Commissioner for Economic Affairs, confirmed that the option of keeping the entire Stability Pact suspended also in 2023 will be evaluated in the spring. An important step forward compared to recent weeks, when the hypothesis was strongly rejected by the so-called "frugal" countries.
“Given the current uncertainty – said Dombrovskis – we will have to reassess the expected deactivation of the general clause in 2023 based on our spring forecasts”.
The risk of causing another recession
At the moment, however, it is only suspended for next year the debt rule. Under this standard, in case you pass 60% of GDP, debt must be reduced by one twentieth a year (fraction to be calculated only on the part that exceeds the threshold).
This is a correction conceived when the public finances of European countries were very different from those of today. Indeed, the pandemic has forced all governments to increase their debt substantially. For years, therefore, it has been clear (almost) to everyone that a tout court return to the old rules (and especially the one on debt) would be suicide, because would impose austerity maneuvers which would not only erase the recovery, but would push the European economy into a new recession.
Reform the suspended Stability Pact
That's why for months there is discussion on how to reform the Stability Pact before it comes into effect. For example, according to Dombrovskis, the debt should be reduced with different criteria between countries with "higher" or "lower" exposures.
Towards a Recovery Fund against war
However, not even the reform will be enough to deal with the probable consequences of the war that has just begun in Ukraine. For this reason, next week, on the occasion of the European Council to be held in Paris, France (current president) will propose to introduce a tool similar to the Recovery Fund, which supports the EU above all in the most critical sectors at the moment: energy and defence. It would be a new step towards debt sharing. It is no coincidence that Gentiloni stressed yesterday that "if the Next generation EU is successful, it will then be possible to re-propose a method of this kind in the coming years, that is, to pool forces for common objectives".
