Brussels is committed to reducing the debt of the States "in a way favorable to growth" without specifying how to do it



The European Commission has launched this Tuesday on the reform of the community fiscal rules. But he has done it without getting wet. Thus, Brussels says it insists on the "need to reduce high public debt ratios in a sustainable and growth-friendly way", but does not say how to do it. In addition, the Community Executive speaks that "the crisis has highlighted the positive role that a coordinated fiscal policy can play, but it is necessary to create fiscal space in good times", but it does not explain what that means either.

"The transition will require massive investments (private but also public) and reforms," ​​continues the European Commission, which is committed to "simplification, greater national ownership and better implementation: strong national fiscal frameworks and independent fiscal institutions can contribute to an effective economic governance framework ".

In this sense, Brussels says that "reducing imbalances remains fundamental", while acknowledging that "focus and traction could be improved", and points out the lessons learned from the launch of European funds, an antagonistic response to that adopted in the 2008 financial crisis: "The agreement-based approach to decision coordination, with strong national ownership of policy design and results, will support the implementation of reforms and investments. A transparent evaluation framework and follow-up will support implementation. "

In this sense, the national guardianship of the reforms contrasts with the approach of the troika through the men in black in the past decade. But Brussels avoids landing those declarations. "We seek consensus," explain community sources. A consensus that, invariably, is pending of the conformation of the German Government and the role that the liberals will have in German economic policy.

"The European Commission will present the guidelines on possible changes in the economic governance framework with the aim of achieving a broad consensus on the way forward for 2023", affirms the Community Executive.

For the moment, Brussels avoids taking sides with the great open debates. In the 11 questions that the Community Executive proposes for debate, he does not mention what to do with the 60% debt objective, the golden rules or if it is necessary to legislate to change the Pact.

Brussels is not convinced that it wants to reimpose its debt reduction rule, which entails a reduction of one twentieth per year in the debt ratios of Member States with ratios above the ceiling of 60% of EU GDP .

The indebtedness caused by COVID has left debt levels too high to be strictly enforced as of 2023.

One answer would be to move towards more country-specific debt reduction paths, the Financial Times suggests. But reaching a consensus on legislative changes to this effect would be tremendously difficult. It might be easier to use the existing flexibilities available to the Commission to try to achieve a similar result.

Green investments

There is great interest among several Member States to discuss ways to better incentivize public investment in key priorities.

This could involve, for example, removing some green investments from the deficit rules. Other ideas are also on the Commission's table, including ways to encourage more investment in defense, for example.

Again, it might be possible to achieve at least part of this without trying to convince Member States for legislative change.

EU lawmakers have also long dreamed of simplifying the rules, which are rife with difficult-to-measure variables, including structural balances and the output gap. This will likely require the EU to undergo a legislative rewrite, a complicated prospect.

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