EU reform of the Stability Pact

The revision of the terms of the Stability and Growth Pact, suspended with the pandemic, has been on the table of the European Commission since November.The intention is to complete the reform process by the end of 2023 and start 2024 with the application of the new rules.

In November last year, the Commission presented some proposals with the division of countries into three separate debt classes. The infamous "deficit-to-GDP ratios" – at 3% and 60% – remain despite having proved unattainable, while the possibilities for sanctions and impositions would even be exacerbated.

The novelty would be that each country must negotiate an ad hoc financial repayment plan with the Commission itself. It would also be influenced by the definition of an at least four-year program of "investments and reforms" in continuity with the strategic priorities already identified by the Next Generation EU ("ecological transition", digitization and so on).

These changes keep the economic edifice of austerity standing, and reformulate it in the process of verticalisation of choices in the hands of the Commission and the executives (Macron's France is an immediate example). Furthermore, they would mark a further qualitative leap in the European institution building process, with a more organic integration of fiscal and industrial policies at the Community level.

These hypotheses have been on the table for several months, and now Germany has decided to have its say on the matter. After the Economy and Finance Council in mid-March, Berlin sent a short text to Brussels and the other European capitals, with more stringent ideas for the new pact.

The content is the brainchild of Christian Lindner, the self-proclaimed German finance minister of the Ordoliberal faith. Thus Scholz's government can please both Lindner's liberals and the Greens, among the main advocates of "rigor" and at the same time standard bearers of the green economy.

At the heart of the document endorsed by the chancellor is the inadequacy of Brussels' proposals, as the Bundesbank had already criticized. The need to achieve a simpler and more transparent common protection leads the drafters of the document to ask for "a minimum binding reduction every year".

The first suggestion is that of an obligatory annual cut in the debt/GDP ratio of one percentage point for the most indebted realities, by half a point for those with more in order accounts. Added to this is also an "ex post safeguard", to verify the effectiveness of the new rules.

These proposals are accompanied by the desire to strengthen incentives for strategic investments, which should be separated from the data on the deficit. But above all they are associated with the maintenance of the multilateral nature of the negotiations on the repayment plans of the individual countries, which should not be left to the Commission alone.

In Berlin they are afraid of excessive discretion on the part of the European executive, but above all they are afraid of losing grip on the guidelines of all Community politics. In this way, the various "frugal" governments would be guaranteed to still have the word on the "cicadas" of the Mediterranean, and in fact Holland immediately joined the German hypothesis.

Even if Macron's words in China were not well received in Germany, the perspective is the same: to push for the strategic autonomy of the EU. In the redefinition of policies and hierarchies due to the new phase, Berlin entrusts the economy with the armoring of the role it has on the continent, in competition with Paris which focuses on the assertiveness of its foreign policy.

Rome in all this is not watching. It plays on its security function in the enlarged Mediterranean and also on some budget choices. But it remains in the midst of an overdetermined dynamic, which makes it fragile: with the German proposal, state expenditure should decrease annually by around 20 billion, and there is no cancellation of income that holds.

In Italy, however, there are also those who appreciate the document from Germany. Former Economy Minister Giovanni Tria underlines how removing the discretion of the Commission would make it possible to avoid difficult negotiations on debt sustainability. An analysis that always puts the government bond market in flux.

In short, there are those who highlight the opportunities of these changes. We can only point out that, in any case, the blood and tears measures will return.For us, the only opportunity is to build an alternative project to this social model, starting from the breaking of the Euro-Atlantic cage to imagine a more just life horizon for the popular sectors.