Published on :
Germany has just presented a new deficit budget for 2021. Is the European country most attached to a rigorous management of public money preparing for the abandonment of the Maastricht rules desired by France?
These rules have been suspended since March, because of the pandemic, and it is not really known at the moment when they will be reactivated. Finance ministers meeting last week in Berlin were very vague on the subject. But behind the scenes, everyone agrees on the diagnosis: these rules are too complex, too politicized and too pro-cyclical, that is to say they amplify the situation, whether good or bad, which is catastrophic when the economy contracts.
Clément Beaune, Secretary of State for European Affairs, stepped out of the limelight to carry the anti-Maastricht fight: ” We cannot imagine putting in place the same Stability and Growth Pact “, He declared to the France Presse agency, because according to the minister who often expresses the thoughts of President Macron, it will be necessary to continue to invest massively to support the economy.
Is Germany‘s New Budget So Far From Usual Eurozone Rules?
This budget, like that of 2020, is already a heresy under German law, since a budgetary brake is written into the constitution. It largely transgresses the limits set in the euro zone: the German deficit in 2020 is greater than 7%, twice more than the 3% provided for by the pact. At 59% of GDP, German debt for this year is still in the nails, the authorized ceiling is at 60%, but it will explode next year, to 75% of GDP. For lack of sufficient tax revenue, Germany will still borrow heavily to finance its recovery.
The Minister of Finance remains enigmatic about the revision of the rules of the euro zone. He acts out of pragmatism and with a political agenda in mind. Olaf Scholz is to lead the list of Social Democrats in the elections scheduled for next year. It is undoubtedly after this election, once we know the new political situation in Germany that we will know if and how the euro zone pact will be reorganized.
Can we completely free ourselves from these rules?
It is possible as long as the States have the confidence of the markets. Which is the case at the moment. On Wednesday, we saw investors rushing into Italian debt the day after the regional elections which bolstered the coalition led by Giuseppe Conte. Yet Italy remains a weak link in the euro area. Its debt should peak at 160% of GDP. That of Spain at 130% and that of Greece at 200%. In the medium term, economists have no illusions: this debt seems unsustainable to them.
The European Central Bank, which currently guarantees the system with its exceptional debt buyback program, is well aware of the risk. And she has a solution in mind: to promote growth, the essential ingredient for States to be able to repay their debt, there is already a tool, she emphasizes, it is the pandemic fund of 750 billion dollars. euros created by the Commission on an exceptional basis. Why not make it permanent as part of the review of euro zone rules, suggests a note published on the ECB’s website. A trial balloon that will again make the so-called frugal countries cough, those who have scrapped against this plan that they must finance, those who remain the most attached to budgetary orthodoxy.