By Andreas Kissler
BERLIN (Dow Jones) — The chief economists of the Savings Banks Finance Group have called for the pending reform of the Stability and Growth Pact to remedy the central problem of a lack of will to politically enforce the rules. “Even the smartest fiscal rules remain ineffective if there is no credible sanction mechanism,” said the chief economist at Landesbank Baden-Württemberg (LBBW), Moritz Kraemer, at a press conference. “It would have been better to leave the introduction of sanctions to an independent body of experts such as the existing fiscal councils.”
The core problem of not wanting to impose sanctions on each other is “still completely unresolved” in the EU Commission’s current reform proposal. According to economists, the previous stability pact has been disappointing. The gap between public debt and deficits is wider today than at the start of monetary union. In a joint analysis, the chief economists therefore demanded that the governance of the pact should be strengthened through greater involvement and greater independence of institutions. It is correct that a sustainable reduction in government debt is still the focus.
The previous pact did not fulfill the hope that common budget rules would lead to fiscal stability. “If the drifting apart of public finances is not stopped, the growing heterogeneity could bring existential risks for the currency area,” warned the chief economist of the German Savings Banks and Giro Association (DSGV), Reinhold Rickes. The risk of sovereign debt crises could increase. The big question for fiscal policy is increasingly being asked: “How should it react in practice between the requirements of a sustainable supply policy and on the other hand the strengthening of demand?”
The monetary policy According to the economists, “in these challenging times, there is a clear mandate, and that is to ensure price and monetary stability,” stressed Rickes. When it comes to economic policy, it is becoming increasingly clear that competitiveness is the priority. It is important to counteract de-industrialization and to tackle the ecological transformation. “Fiscal policy is of course also in this area of tension, which on the one hand has to cover this large investment requirement, but on the other hand also has to keep an eye on financial stability.”
With the Ukraine war, supply bottlenecks and the energy crisis, the market environment has “changed drastically”, emphasized the DSGV chief economist. However, “there shouldn’t be any excessive new borrowing opportunities” even now. Even in this time, one must always allow the primacy of a solid financial policy. In this context, Rickes spoke out in favor of maintaining the previous criteria for deficit and national debt of 3 percent and 60 percent of gross domestic product.
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(END) Dow Jones Newswires
February 07, 2023 04:28 ET (09:28 GMT)