They did not call it stupid because Romano Prodi already did it when he was president of the European Commission, but the top economic officials of the current team were not much more generous in taking stock of the 30-year history of the EU's stability and growth plan.
Suspended for a major cause at the beginning of the pandemic, Brussels intends to reactivate it in 2024. Before that, it proposes correcting its multiple “weaknesses” so that it serves its original purpose and brings budget stability and growth to the same level. "That was the spirit of Maastricht," stressed yesterday the vice president of the European Commission, Valdis Dombrovskis. After decades in force, “public debt remains stubbornly high in some countries. Good times have often not been used to prepare reserves, almost all countries have violated it at some time, and the rules have become too complex.
What the European Commission is proposing is to replace the multitude of indicators that are used today to monitor the budget trajectory of countries with just one: net primary spending. This spending ceiling would set the multi-year adjustment path for each country and would be based on a "realistic" path of debt reduction, not as has been done until now, with unattainable goals, stressed the European Commissioner for Economy, Paolo Gentiloni.
The authorized net primary expenditure figure will be set based on an initial Commission proposal (the higher the debt, the more pressure there will be to correct it, he assures) but it will be up to each Member State to design its content, instead of imposing the commitment to reduce all debt above 60% at a rate of one-twentieth per year, a method that has not served its objectives. "This is a radical break from the current situation," Drombrovskis stresses.
This change is one of the lessons that the EU has learned from the economic management of the pandemic, when a recovery fund was created conditioned on the application of a previously agreed reform plan. If governments are the authors of the plan, they will feel more committed to carrying it out, they argue.
In case of wanting more time to carry out the adjustment, the capitals will be able to negotiate extensions in exchange for committing to carry out reforms or investments in strategic sectors. In the event of a change of government, the new team will be able to negotiate a reorientation of the plan. But until they agree on the new path, the old will apply. The idea that Brussels offers tailor-made suits to each country does not please countries like Germany or the Netherlands, which is why Dombrovskis and Gentiloni insisted that "in no case will this be a two-way negotiation." The national plans agreed between each country and the Commission must then be approved by Ecofin.
The counterpart to this flexibility is a stricter control and a system of sanctions, pecuniary and reputational, more powerful than the current one because the amount of the fines will be “more realistic”, which will make it easier to apply them. Currently, a penalty of “up to 0.5% of GDP” is foreseen for not following the EU budget recommendations, a formula that has never been applied. "We have come to the conclusion that the fact that a sanction is imposed is more important than its amount, because it has a reputational effect," said a senior community official yesterday.
The Commission's proposal marks the beginning of a debate that should culminate before the stability pact is reactivated. Vice President Nadia Calviño's team thinks it's a good starting point. "It is a balanced proposal, inspired by the Spanish-Dutch role and its basic principles of national ownership, medium-term focus and differentiation by country," say government sources, who do not rule out reaching an agreement on the legal text under the Spanish presidency of the EU, in the second half of 2023.
From the European Parliament, Jonás Fernández, spokesman for the Socialists in the Economic Affairs Committee, applauded that Brussels proposes to move to "a less procyclical framework and more adapted to each country" but called for the creation of a common budgetary capacity. The European People's Party, for its part, emphasized that the control system be strict, while Ernest Urtasun, vice president of the Greens, celebrated the break with "the rules of the era of austerity" but regretted that it is not required to do green investments.
