The European Commission Towards the New Stability Pact

Politics - May 13, 2023

There are Automatic Infractions for Those who do not Comply with the Budget Commitments

The new scheme of European economic governance was evaluated in recent weeks after the project, already initialized in the autumn of 2021, saw a precise definition thanks to a compromise between Germany, at the helm of other northern European countries, which has always very attentive to the financial rigor of the continent and the countries of central and southern Europe, including Italy and France, with a greater need for flexibility for a necessary fiscal recovery and efficient economic growth.

With the reform of the European Stability Pact, a new, more rigorous and careful infringement management system will also come into force to ensure the good conduct of the Member States in the procedures envisaged to comply with the commitments and indications provided by Europe. Infringement proceedings will start virtually automatically when substantial deviations from the necessary fiscal adjustment path are recorded by the states concerned. The countries of the Eurozone with problems relating to public debt, therefore, will be obliged to maintain the economic-financial commitment within the pre-established times.

The reform proposed by the European Parliament will keep the reference values of 3% for the deficit and 60% for the debt unchanged and at the end of the spending plan agreed with each government that will undertake the path of economic alignment, with an average duration of 4 years , the ratio between GDP and public debt will have to be significantly decreased and a minimum budget adjustment margin of 0.5% of annual GDP will in any case be envisaged.

The request for a budgetary adjustment, by a State of the European Community, must be supported by a significant increase in public investments with the aim of encouraging the financial movement within the country in favour of related activities related to the various proposed projects. It will be essential to integrate tangible economic growth with good fiscal sustainability into the adjustment path. The investments envisaged and considered a fundamental prerogative for the start of the budget adjustment processes must be higher and qualitatively better than those recorded the previous year, thus representing a real revolution in the field.

The personalization of the budgetary repayment plans, for each Member State that needs them, would represent an important margin of manoeuvre in the definition of the budget itself so as to make the path more manageable for the Governments concerned. Another prerogative of the European Stability Plan will be a certain gradualness in the expected decrease in debt compared to what happens with the current rules and compared to the last 10 or 15 years.

The Member States affected by the provision under discussion in the European Commission will not be able to postpone the deadline for verifying the planned budget adjustments and the related investments, as well as the reforms, will have to be carried out in the terms originally envisaged and agreed in the decision-making phase. As regards countries that are “fragile” from a financial point of view and that need wider margins of manoeuvre to make up for bureaucratic and managerial delays, such as Italy, which has always been very attention by the European Community, the new settings and the new scheme for the adjustment of the internal budget, thanks to an extreme customization based on the problems of the requesting country, would represent a great opportunity for growth and development. It will be essential for Italy to define a return path based on national financial characteristics and in relation to the possibility of spinning off some previous investments which can thus be used for the new budget.