The expected significant increase in public spending in the coming year and beyond in areas such as security, defence, energy transition from fossil fuels to green energy and even greater spending on digital technologies and initiatives should be treated favorably in the light of the Stability Pact. when it comes back into full effect in 2024.
These should be some of the “guidelines” that the European Commission will pass this Wednesday (9th) to launch ideas for the new cycle of the European Semester (fiscal and economic policy coordination, now related to 2023), which will starting at the end of this November.
The priority given to investments in defence, security, green and digital transitions was already underlined in the State of the Union address delivered by European Commission President Ursula von der Leyen in mid-September 14. .
The many billions of euros that are and will be mobilized by the public budgets of the different euro countries for the above-mentioned areas of security, defence, green energy and digital technologies could thus benefit from a discount, preferential treatment or even not count towards the calculation of the budget balance and government debt.
In other words, there is expenditure, but it should not be reflected in or lead to increased budget deficits or an increase in apparent public debt.
The European Commission and von der Leyen will make their first proposal, stating these guidelines, so that governments can then debate among themselves and reach an agreement and a more reformed model of the Stability Pact, a set of rules invented about 30 years ago. .
Portugal against brushes: they don’t work, country has huge debt
Portugal says it opposes future rules “excluding” certain investments from the deficit and debt rules (when they are fully applied again in 2024), because this will benefit countries with budget margins and low debt more.
If it is true that Portugal (Finance Minister Fernando Medina) is reducing its deficit (which is already below 3% of GDP and could reach 0.9% next year according to the government’s wish), the country continues to struggle with a serious debt problem, taking into account what the Stability Pact requires.
The debt even appears to be declining rapidly, but remains well above the ceiling set in the Pact, which is 60% of gross domestic product (GDP). This year, Medina says the debt burden will fall to 115% and could rise to about 111% by 2023.
Problem: A country with a debt of this magnitude has few degrees of freedom to incur debt to attract or leverage much-desired investments in security, defence, green energy and digital media.
That is why Minister Medina said on Tuesday in the margins of Ecofin (Council of Finance Ministers of the European Union) that the “exclusion” of certain investments is not the right way.
Apparently it helps more to give freebies to countries with margin and leaves the most debt, for example.
“This is a measure that should be viewed with caution and consideration, as it is a measure to exclude a certain type of expenditure from the deficit account. It is a measure that benefits many more countries that have a fiscal margin and have a margin of debt much higher than the others,” said the Portuguese official, quoted by Lusa.
Instead of exceptions, a common investment mechanism
Medina rather defends the creation of funds or investment instruments, “common instruments from the Union’s financial point of view”, such as a “permanent financial” mechanism to cope with crisis situations such as the current one.
“I believe that this solution is preferable to allowing an exception from a debt or deficit limits point of view, as it would be a disadvantage for the countries that are better off,” Medina insisted.
On the return of the pact’s rules in force in 2024, the minister, quoted by the same body, reiterated that “Portugal fully adhered to these rules and went beyond what it would in fact be strictly obliged to do”.
“Portugal is quite comfortable with the different debates and with the different lines that have been heard in the debate on the new EU fiscal rules”, but these should be “appropriate in view of the economic realities that the different Member States are experiencing today, after the financial crisis, after the pandemic crisis, with a very high national debt,” the minister asked in Brussels.
First pandemic, then war, inflation and recession
It should be recalled that the main pillars of the Stability Pact, aimed at fiscal discipline (reduction of deficits/strengthening of budget surpluses and reduction of public debt) of the countries of the European Union, in particular those of the euro area, were suspended on the basis of the start of the pandemic in 2020.
Last May, this exception framework was extended for another year (until 2023) due to war and inflation.
In that Communication on the new cycle of the European Semester (package of the economic and budgetary assessments of the 27 countries of the Union), the Commission stated that “it considers that the conditions for maintaining the general safeguard clause of the Stability and growth pact in 2023 and to eliminate it from 2024”.
This clause – which exempts countries from sanctions if they violate the rule of 3% of GDP (gross domestic product) deficit and 60% debt – was activated in 2020. In practice, it suspended the need for countries to comply with key rules in public accounts and to be convicted or censored for doing so.
With this, Dinheiro Vivo wrote at the time that countries (governments) were given more leeway to spend public funds and increase their debt burden to cope with the pandemic crisis that hit economies after the lockdowns and severe restrictions imposed to try to stop covid19.
According to Brussels, “the continued activation of the clause in 2023 will allow for national fiscal policies to react quickly when needed, while ensuring a smooth transition from comprehensive support to the economy in times of the pandemic to a greater focus on temporary and targeted measures and in the fiscal prudence that will be necessary to ensure medium-term sustainability.”
Now there is just over a year left to deactivate the protection mechanism for most debtors, such as Portugal, a country that expects the economy to slow to just 1.3% growth by 2023, according to Finance.
Luís Reis Ribeiro is a journalist for Dinheiro Vivo
Source: DN
