One of the influential voices in Brussels on this and other economic issues is that of Maria Demertzis (Greece, 1968), deputy director of the think tank Bruegel, and before the European Commission and the Dutch Central Bank. She has also held academic positions at Harvard Kennedy School of Government in the United States and at the University of Strathclyde in the United Kingdom, where she holds a PhD in Economics.
Why do we need to go back to the deficit rules and why do we need to reform them?
– There are good reasons why we had these rules and also good reasons to recover them. There are interdependencies between European countries and therefore one country’s fiscal policies may have effects on everything else, they may be positive or negative, but there are. That is why it is crucial that the decisions of one country do not endanger the health of others and, in fact, of the eurozone. Therefore, the rules are necessary, although experience shows that they were never implemented properly, and if you have rules that you do not apply correctly you end up losing credibility. The pandemic, paradoxically, has given us the opportunity to rethink it. We have suspended the rules for a while, but the reason for them is still valid. We now have the opportunity to reflect on how we deploy them so that they can be implemented.
How does the need to continue to recover savings with debt reduction go hand in hand?
– Certainly these are the two main problems. The first is that we will have huge needs for public investment, and the second is that we will not start clean: some countries have a debt of more than 100% of their GDP. How will they do it? Given the investment needs in the green and digital transition, the only way is not to treat these investments like the rest, that is, to exempt them from the rules. Consensus is on track and this will be an important part of the discussion this year.
But the high level of debt will remain.
– Yes, we must ask ourselves whether even by releasing these investments from fiscal control the financial sustainability of countries cannot be jeopardized. For me, the answer lies in the recovery fund, the new instrument created during the pandemic so that precisely the countries can invest. This is the way to ensure that the fiscal policy of certain countries will not be jeopardized as long as they continue to contribute to the green and digital transition. If these countries do not do so, the European goals will not be met. So the incentive is there for everyone. This is a good time to discuss extending the life of the recovery fund or even making it permanent.
But that requires political will and consensus.
– The best advantage of the recovery fund is that it has already been agreed. In the previous crisis, the discussion revolved around sharing or reducing risks, a very divisive debate. This time it was quickly seen that sharing them manages the problem better. It was also true then, but it has not been until now that politicians have seen it clearly. It’s like designing life insurance – you put money into the future, but that doesn’t mean you don’t have to maintain a healthy lifestyle. The recovery fund is used for this. Of course, it will not be easy, but the political environment right now is much better, it is not toxic, it is open to discussion. Not only for the French presidency of the EU, but also for the change of government in Germany and the Netherlands.
And within this positive environment, how far is there room for reform?
– I sense that it will be possible to free green and digital investments from tax rules. The urgency is clear and everyone understands it. Of course I would like more measures, but I think this is where the broadest consensus lies.
Therefore, we will continue to have a deficit limit of 3% of GDP and a debt limit of 60%.
Yes. I don’t think the numbers change. What there will possibly be is a review of how to get there. The rate of reduction will probably be revised, but I don’t think it’s easy to agree on any other goal, basically because we don’t know quite clearly why we chose 60 and not another figure.