For Olaf Scholz (SPD), the discussion about reforming the Stability and Growth Pact is inconvenient. The future chancellor knows that his potential traffic light partners are worlds apart on the subject. The Liberals see the Maastricht criteria as a guarantor of stability, the Greens as a harmful brake on investment. So Scholz tries to wipe away the debate: The rules have proven themselves in the corona crisis, a change is not necessary.
This is window dressing that is more due to Berlin’s coalition constraints than to European realities. If the test of the rules consists in suspending them for three years, then it is fair to ask how useful they are in the long term.
The Maastricht target of keeping the annual deficit below three percent of gross domestic product may soon be achievable again. But the limit of 60 percent of economic output in terms of debt is out of reach for many states after the corona pandemic at the latest. Italy is 155 percent. If the government in Rome were to try to reduce the debt to 60 percent within 20 years, as the rules provide, that would be economic madness.
In this respect, it is understandable that the EU Commission should initiate a reform process. But the operation is risky. The differences in Europe are too great between those who find the requirements fundamentally annoying and those who always fear that others want to make themselves comfortable at their expense. A compromise under these conditions runs the risk of making many things more complicated, but little better.
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Above all, the Commission must resist those forces that want the Maastricht rules to be largely relaxed. As much as one can debate the economic necessity of strict debt limits in national constitutions, it is also clear that a monetary union cannot work without clear rules of stability.
Mainly for political reasons. The danger that governments in some countries will be particularly generous because they can trust that the monetary community will be responsible for this with their creditworthiness is real. We need guidelines that prevent this in the interests of everyone.
It has to be a cautious reform
In the European discussion, a lot of consideration is given to sensitivities in countries like Italy, which feel harassed by the European rules. At the same time, however, it must be avoided that in northern European countries the impression becomes entrenched that one has to pay for other people’s meanderings. Because that too would be a political explosive for the European community.
So it has to be a cautious reform. One proposal is to deduct investment expenditure from the deficit in future. The idea reappears every year, sometimes expenses for defense should be credited, now for climate protection and digital.
The problem is always the same: The division into good and bad debt would make the already difficult to understand rules even more complicated. There are delimitation problems that can ultimately lead to a complete loosening of the rules.
The second suggestion is to raise the debt ceiling to a higher value. But what would that be gained? Of course, the 60 percent is arbitrary, but 80 or 100 percent wouldn’t be less. And the question arises as to whether the next increase should not follow in a few years.
The critics from the right have always objected to the Stability Pact that it is a toothless set of rules that is constantly being violated. The critics from the left, on the other hand, see an economic gagging that forces states to austerity.
The truth lies in the middle: even if the Maastricht criteria were not always and not all adhered to, they did have an effect overall as fixed points. Before the corona pandemic, the average debt values were not as far removed from the Maastricht borders as is now suggested after the crisis with the constant focus on outliers such as Italy.
Debt limits should remain in place
In this respect, the debt limits should remain as a target. They are not perfect, but better guidelines that are understandable, easily applicable and transparent are not in sight.
The debate must focus on the question of how quickly the European states should approach the debt limits again. More flexibility is called for here, also in view of the financial consequences of a pandemic of the century. It is not the aim of the Stability Pact that should be called into question, but a sensible, feasible way to get there should be sought.
More: Farewell to Maastricht – EU debt rule contains explosive factors for traffic light negotiations