24 hours away from presentation of the reform of the Stability Pact proposed by European Commission we begin to make the first calculations and to probe the ground in view of the meeting of finance ministers scheduled for Friday and Saturday in Stockholm. That will be the first useful occasion in which the representatives of the various Member States will be able to discuss the proposal which, according to Brussels' intentions, should be approved by the end of the year. L'application of the old Pact is suspended, due to the Covid emergency, from March 2020 and will be reactivated on 1 January 2024. The Commission's objective is therefore to start again with new rules, considered realistically applicable, to promote sustainable growth by enabling countries to reduce debt without jeopardizing investment. However, at the moment the road seems to be uphill, with Italy complaining about the non-exclusion of expenses for Pnrr and Green Deal in the calculation of target expenses and Germany which instead considers the limits imposed by Brussels too bland and weak. In the middle of the tug of war on the Mes, with Italy which in Stockholm could find itself caught in the crossfire by the other EU countries which are demanding the immediate ratification of the European Stability Mechanism (MES), arguing that our country is "freezing" the discussion ”.
With the new Stability Pact for Italy, a correction of 8-15 billion a year
According to the new rules proposed by Brussels, countries with a deficit of more than 3% or/and a debt of more than 60% of GDP will have to present budget adjustment plans four years (extendable to seven) to reduce the debt and will be obliged to carry out a 0,5% fiscal adjustment annually, under penalty of an automatic infringement procedure.
Calculator in hand, according to the projection elaborated by the technicians of the European Commission, for Italy these parameters will imply a corrective measures worth 8 or 15 billion a year, equal to 0,45% or 0,85% of GDP annually, depending on whether our country decides to adhere to an adjustment plan spread over four or seven years. For the moment, EU sources underline, these are simple simulations and the real numbers will be seen later on the basis of the individual plans. But the indications seem clear: Italy is a country with a very high debt (2.772 billion euros according to Bank of Italy) and a deficit which, according to the Def, will reach 4,5% by the end of the year. As a highly indebted country, it will therefore have to present a budgetary adjustment plan, which in all likelihood will be spread over seven years, following a "technical trajectory" (this is the definition indicated by Brussels) which guarantees that the debt has a plausible decrease or remains prudent and that the deficit decreases or remains below 3% in the medium term. A seven-year plan therefore implies an adjustment of 0,45%, equal to 8 billion a year. If instead Italy chose to opt for a four-year plan, the correction would rise to 0,85%, i.e. 15 billion a year.
Highest fix under current rules
At first glance the figures may seem prohibitive, but with the current rules - which will come back into force on January 1, 2024, we remind you - would be even more so. The application of the Stability Pact currently in force would require Italy to annual adjustment of 0,6%, 11,5 billion euros. Not only that, the correction should be applied for a longer period of time, i.e. until our country reaches the medium-term objective. Not to mention the rule of the twentieth which currently calls for the repayment of the debt of 5% of GDP for those over the 60% threshold, in an extremely pro-cyclical intervention and in fact never applied. The new proposal scrapes it, but if it stays in place it would imply one effort of 4,5% per year to be satisfied. Finally, if we also take into account the figures contained in the Def, the government's adjustment target for this year is 3,6% and 0,9% in 2024. Simply put, the new rules establish lower annual corrections to those currently envisaged and also to those indicated by the government in the Def.
Giorgetti: "It was necessary to exclude Pnrr expenses". Germany: "Weak parameters"
According to the Minister of Economy Giancarlo Giorgetti, the proposal to reform the Stability Pact presented on April 26 by the EU Commission “is certainly a step forward but we had forcefully asked for the exclusion of investment expenses, including those typical of the Digital Pnrr and green deal, from the calculation of the target expenses on which compliance with the parameters is measured. We acknowledge that this is not the case."
“Any investment expense – continued Giorgetti – since it is significant and produces debt for the new pact, it must be carefully evaluated. Therefore, only spending that actually produces a significant positive impact on GDP should be privileged".
The comment of the German Finance Minister goes in the totally opposite direction Christian Lindner: “The proposals of the European Commission do not yet satisfy the requests of the federal government”, said the minister, adding that Germany “will not accept reform proposals that weaken the EU's Stability and Growth pact”. Lindner stressed that the Commission's proposal will in any case be "the basis for further negotiations", in which Germany will be "constructive". In fact, it should be remembered that Germany and the Netherlands were asking for a fixed numerical coefficient for all of the debt reduction which, in their opinion, should have been equal to 1% for countries with high debt, such as Italy. Brussels instead opted for 0,5%.
More positive than the German one, the reaction of the Netherlands where, however, the government makes it known that it wants "the new rules to lead to an ambitious reduction of the debt and greater debt sustainability for highly indebted countries". For the France, on the other hand, the proposal "goes in the right direction", despite Paris not looking favorably on automatic rules for deficit and debt reduction.
Italy squeezed between the Stability Pact, Mes and Pnrr
The different positions of the Member States will already emerge on Friday in Stockholm where the finance ministers of the Eurogroup will come together and where Italy will be in everyone's sights. The reason? The month
Europe no longer intends to wait and Italy's failure to ratify has become a problem: "The failure to ratify - underlined the EU official - is somehow blocking” even further reforms. For the source “it is impossible to discuss other measures that could be useful if we have not implemented a previous agreement. Is having a chilling effect on discussions“. Italy, for its part, keeps the point: the Mes “goes updated and transformed as a vehicle for growth”, underline government sources.
In the coming months, therefore, the comings and goings between Rome and Brussels will be very intense. Because the negotiations on the Pact and the one on the Mes will also be added changes to the Pnrr. These are three points that are only apparently separate, but which Italy considers closely linked. And it is no coincidence that Giorgetti has remarked on the inclusion of investment expenses in the calculation of the target expenses on which compliance with the parameters of the Stability Pact is measured. Why, and it will probably be on this that Italy will push, if the new Stability Pact does not provide for any “golden rule” (i.e. the rule that calculates certain categories of investments with a different accounting system) the member countries with a high debt will be called to concentrate only on those investments that lead to a decrease in the deficit and in the debt compared to the GDP. With the risk, therefore, of deviating from the priorities that, through the Next Generation, the EU has imprinted on the Pnrr of the member countries.
