Clear fronts, cramp after the general election

Europe column

Every week Moritz Koch, head of the Handelsblatt office in Brussels, analyzes trends and conflicts, regulatory projects and strategic concepts from the inner workings of the EU. Because anyone who is interested in business needs to know what’s going on in Brussels. You can reach him at [email protected].

Are There Good Debts And Bad Debts? The question is actually superfluous, every bank trainee learns to make this distinction. It doesn’t matter whether an entrepreneur wants to expand his factory with a loan or build a koi carp pond in the garden. Nor is it a matter of indifference whether a state issues bonds to finance schools and train routes or to increase civil servants’ pensions.

The EU, however, treats all debts equally – that is the greatest weakness of the European Stability Pact. For this reason, the former Commission President Romano Prodi described him as “stupid” 20 years ago. Now the dispute over the debt rules is again in Brussels – and the discussions show how difficult it is for politicians to take a differentiated position on emotionally charged issues.

The fronts are marked out. The southern Europeans would like to get rid of the pact entirely; they see it as a corset that is hostile to growth. The northern Europeans, on the other hand, want to preserve it. The outcome of the controversy will largely depend on the positioning of the next federal government.

The Union parties see themselves as guarantors of fiscal discipline. The SPD and the Greens, on the other hand, are ready for reforms, although Federal Finance Minister Olaf Scholz emphasizes that the fiscal pact has proven its worth in the pandemic due to its flexibility.

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The EU Commission sees it differently. Monetary Commissioner Paolo Gentiloni has made it clear that he does not want to spend the next few years applying “unrealistic” rules. The fact is that the core demands of the pact – the budget deficit must not exceed three percent, the total debt must not exceed the mark of 60 percent of the national economic power – are practically no longer met by any EU country.

There are no rules that no one adheres to

The rules have therefore been suspended since 2020 and should not apply again until 2023. Anyone who retreats to the position that everything is in order with the pact is therefore making it too easy for themselves. There are no rules that nobody obeys. Therefore, Germany and other countries that are skeptical of the southern Europeans’ desire to relax should also be interested in an objective discussion.

There have been reform proposals for a long time. However, the Commission would prefer to wait for the federal elections before carrying out the public consultation. That comes in handy for Scholz, who wants to present himself to the voters as a solid treasurer. However, by October at the latest, the debate will gain momentum.

The trick will be to find a way to reconcile financial sustainability with the investment needs that exist in all EU countries in light of the green transformation of the economy. And this is where the distinction between good and bad debt comes back into play. State investments to build a climate-neutral, future-proof economy are to be assessed differently than the distribution of election gifts. Germany would also be in a better position if the CSU had paid more attention to the expansion of the fiber optic networks than the maternal pension.

Maybe a look at Washington will help. The International Monetary Fund does not take a general view of the debt levels of its member states; he analyzes debt sustainability. The interest rate level and the expected growth are also taken into account. Smart investments enable future income – if this insight prevailed in the debt debate, a lot would be gained.

More: The EU’s climate goals are putting pressure on the Stability Pact