Monday, December 6, 2021

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    EU fiscal rules need more than technical adjustments

    In Freud’s psychoanalysis, neurotic behavior is a manifestation of suppressed emotions. As the EU is obsessed with codified rules, it is politics that is being oppressed.That’s why Newly resumed debate It will be difficult about the financial rules of the block.

    Current financial framework No one is satisfied.. Deficit countries feel that their discipline is too constraining to promote economic growth that improves public finances. The surplus countries conclude that they have high debt to their struggling neighbors, which are not sufficiently constrained. The rules are too complex to reach voters and undermine democratic acceptance.

    The most negative thing everyone has to say, especially the German Finance Minister Olaf Scholz, who is likely to be the next prime minister, is the rule that the government saves the economy from disasters during the Covid blockade. Did not stop. It may be the definition of an abominable dictionary with faint praise.

    Therefore, while major changes have been delayed, few expect a consensus on what form it should take. Therefore, the temptation to tinker with the edges. But the problem is that economic conditions have changed in at least two consequential ways.

    First, the (correct) reaction to a pandemic caused a surge in the masses. Debt ratio to gross domestic product.. Second, the EU’s priority is to drive a significant increase in investment to move into an economy with zero net carbon emissions, a thoroughly digitized and widespread opportunity for prosperity. I need it.

    The current framework does not reflect these changes. Today’s rules require governments with a debt-to-GDP ratio of more than 60% to reduce their excesses by a factor of 20 per year. Its speed of integration is a recipe for greatly impeding growth and probably defeats its own purpose.

    The size of the additional public investment required is incompatible with the ban on excessive deficits unless it is funded by significant spending cuts or tax increases elsewhere. They too will hurt growth and undermine political support for the green and digital transition.

    Therefore, without reform, the rules will not return to a situation that is at least somewhat binding. The most debt-ridden countries do not reduce their debt at a prescribed pace. The government will borrow to keep up with the economic transition, and deficit restrictions will be tightened. Fiscal rules are an item that balances political calculations.

    Such observations are primarily general grounds. As a result, many excellent technical proposals have emerged, including those from institutions with a clear interest in sustainable finance.

    European Finance Commission recommendation Country-specific paths for debt reduction, taking into account the difficult starting points of some countries. Klaus Legling, Managing Director of the European Stability Mechanism, think The 60% cap on the ratio of public debt to GDP is “no longer relevant” and needs to be raised.Bruegel the think tank Proposing “Green Golden Rule” This may exempt public investment spending from financial constraints.

    All of these will be useful reforms. However, their adoption does not depend on their usefulness. A serious challenge for EU fiscal rules is that they use technical solutions instead of political ones.

    Multinational corporations with multiple sovereignty levels are tempted to eliminate politics altogether. But that is also useless. Like Freud’s oppressed emotions, oppressed politics does not go away, but it causes dysfunction somewhere else — the ability of the rules to do their job to the satisfaction of everyone. includes.

    The obstacle to good fiscal governance in the EU is not bad rules, but poor politics.In particular, the lack of shared political ownership of economic policies in member countries-despite Treaty obligations “We see their economic policies as a common concern” —creating mutual distrust. Financially weak countries are distrustful of the motives of strong countries, and their motivations are distrustful of the ability of weak countries to manage their economies.

    However, there are signs of hope in the politics of the reconstruction fund after the new pandemic.other than Hungary and Poland, They have not caused old suspicions between weak and strong economies. The exact opposite. Although only in its infancy, if this process is considered successful, it will prove that the North and South of Europe can trust each other to pursue joint economic goals. It will make a bigger difference in fiscal governance than any technological change.

    EU fiscal rules need more than technical adjustments

    Source link EU fiscal rules need more than technical adjustments

    The post EU fiscal rules need more than technical adjustments appeared first on Eminetra.

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