German debt rules proposal fuels new austerity fear
“Everyone is jumping on [the German proposal] as if the 1 per cent is sort of a red line,” Sander Tordoir of the Centre for European Reform told Euractiv.
“But if you read the paper, there’s a lot of ‘could’ and ‘could for example be’,” he said, adding that he thinks this language is chosen “explicitly and purposefully, signalling openness to discuss”.
In his interpretation, even in the view of the German government, the new rules will primarily focus on countries’ “net expenditure”, which means that in times of economic crisis, expenditure to stabilise the economy could still be done.
After national plans had been developed, “the leading guideline is this expenditure rule. So then the ‘debt safeguard’ is not the leading criterion,” he said, referring to the German proposal of a debt-to-GDP reduction of at least 1% a year.
The “real disagreement” between the Commission and Berlin would be whether the debt had to be reduced from day one, or only after four to seven years, as the Commission had proposed, Tordoir said.
“I think what Berlin is saying is that they want that [debt-to-GDP] ratio to already be declining during the four years,” he said. But given the current environment of high inflation and “normal” growth rates, this would not be unrealistic.
“If you are in a phase of higher inflation and growth is not great, but okay-ish, then a 1% nominal debt reduction, of the debt-to-GDP ratio, is doable, without having to go into austerity at all,” Tordoir said.
...“The political reality is that Berlin does not trust the Commission to be strict enough to enforce the rules,” Tordoir said.
Therefore, Berlin insists on measurable rules in numerical terms, applying to all member states.
But this had the disadvantage that countries’ individual situations could not be taken into account and would require a lot of estimates on the future economic development, Tordoir said.
“Codifying rules is very tricky because you don’t know what the economic environment looks like [in the future],” he said, adding that “we’ve had a lot of shocks, and we certainly don’t know what it looks like in five years”.
He, too, is no fan of the Commission’s proposal, as it included a “very weak” enforcement of the rules.
He would therefore prefer a “third way”, Tordoir said, which is “to give the Commission that discretion, but to have a much more robust set of enforcement instruments”. For instance, the payment of EU funds could be made dependent on compliance with fiscal rules.