“The high deficits are currently automatically decreasing everywhere.”
(Photo: ddp/Alexander Flocke)
Mr. Büttner, the federal government has presented its proposal for the reform of the Stability and Growth Pact. That’s not a more flexible set of rules that some people are calling for, is it?
That’s how it is, and that’s a good thing. Fortunately, Christian Lindner wants to keep the core of the pact: the rules for limiting debt. In principle, the member states are permitted annual new debt of a maximum of three percent of the gross domestic product and a total debt of a maximum of 60 percent.
It’s just that various EU countries don’t comply with these limits because they think it’s impossible.
It is all the more important to strengthen the rules. Sound fiscal policy in the euro area is impossible without clear borders. And that, in turn, is a prerequisite for curbing inflation and for keeping the euro zone together.
Massive investments in climate protection and digitization will be required. How are countries supposed to succeed if we force them to save now?
In recent years, new debt has been taken on to a very considerable extent. This cannot be continued indefinitely. The possibilities of financing government spending through new debt are limited. This applies regardless of what the money is specifically needed for. If there are new challenges, the priorities have to be set differently.
The Federal Minister of Finance agrees and wants to make the “medium-term budgetary target” binding, which was previously at the discretion of the EU Commission. It stipulates that member states may in principle only have an annual structural deficit of 0.5 percent or at least approach this target in steps.
The medium-term budgetary target is a sensible limit for new borrowing. The old three percent rule was often accused of promoting a pro-cyclical fiscal policy. In other words, savings have to be made during the crisis, which would only stifle the economy even further. The commitment to the medium-term budgetary goal, on the other hand, takes account of the need for flexibility.
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Why?
The Maastricht criterion of limiting annual new borrowing to three percent is broad but inflexible. In this respect, I can understand the fears that flexibility is limited. However, there are emergency clauses that also apply at the moment. The medium-term budgetary target, which Lindner now wants to strengthen, takes into account the necessary flexibility anyway, since the current economic situation in the respective country is taken into account. In the crisis, more new debts are allowed, in the upswing less.
>> Read here: “Our most dangerous problem is inflation”: How Finance Minister Lindner wants to keep the euro stable
Would the famous three percent target only be a side issue in the future?
That depends on the details, but the general rule is that those who meet the 0.5 percent of the medium-term budgetary target should also generally meet the three percent criterion.
Is a commitment of 0.5 percent in the medium-term budgetary target anything close to realistic? In Italy, for example, it was six percent in 2021.
The high deficits are currently automatically and significantly decreasing everywhere. Because they reflect the special situation of high expenses and severe loss of income during the corona epidemic. With the end of the epidemic, household numbers will improve. The 0.5 percent as a medium-term target value and the required annual improvement are also realistic for Italy. In addition, the one-twentieth rule should also be abolished according to the ideas of the federal government…
So far, this has stated that highly indebted EU member states have to reduce their debt by an average of one twentieth each year so that they can reach the 60 percent target again.
This rule, introduced during the financial crisis, is unrealistic in view of the high level of debt and should now be scrapped, and rightly so. Some countries would be clearly overwhelmed. Compliance with the medium-term budgetary objective is sufficient in the long term.
With the binding nature of the target, the power of the EU Commission increases significantly. Isn’t that grist for the mills of populists and euro critics?
The EU Commission has an important task in monitoring the rules. I think that stability in Europe urgently needs it to take on this task. For the first time, the European Fiscal Council has also criticized the EU Commission for its lax handling of the rules.
Mr Büttner, thank you very much for the interview.
Julian Olk asked the questions.
More: Euro countries have violated debt rules 37 times – but received zero penalties