Since the pandemic and for four years, the EU tax rules, which set a limit of 60% of GDP on public debt of the states and required a maximum deficit of 3% per year, have been suspended. The EU reached the sensible agreement that if economic activity was interrupted or collapsed due to exogenous and unforeseeable causes, the states should support citizens and companies with public spending.
But in view of 2024, and therefore, during the Spanish presidency of the EU, new tax rules should be agreed upon, and the fairly general belief is that more flexibility would be desirable that, without forgetting the obligatory sustainability of public finances, avoid the rigidity that aggravated the 2008 crisis, which only began to be corrected when Mario Draghi, then its president, declared in 2012 that the ECB would do everything necessary – and assured that I would make it – so that mistrust in debt of some states will not end the euro.
Now we have to negotiate the new rules and the pact will not be easy because the countries of the north -which have healthier public finances (and sometimes a high personal income tax)- distrust those of the south, with higher debts, and fear that their taxpayers will end up paying the ‘prodigalities’ of the most indebted countries, who are usually also the less wealthy.
That is why the cordiality -despite the political differences- of the recent meeting between Pedro Sánchez and Giorgia Meloni is not surprising. Regarding tax regulations, the interests of Spain, Italy and even France are close. And the European Commission is preparing a proposal with fewer taboos (60% and 3%) that pays more attention to debt sustainability with agreements between the states and the Commission itself. But the German Minister of Economics, the liberal Lindner, insists that the countries with the most debt would be obliged to reduce it every year.
The discussion is open and EuropeG, the group of economists led by Antoni Castells, has launched a proposal, based on the study of the influential Belgian economist Paul de Grauwe, to be taken into account. It advocates prioritizing debt sustainability in the medium term – like the Commission and many governments – but It also proposes two other relevant changes. The first is the so-called golden rule -already discussed at other times-, which would divide the budget between current and capital spending. Only the current deficit could be subject to specific rules, while the investments -necessary to finance the fight against climate change and ensure the future – should be agreed between each state and the European Commission with criteria of economic efficiency.
The proposal is complex, but EuropeG makes an indisputable reasoning. If the investments enter the current budget of each year, it will be the current generations that pay for projects that will also benefit future ones. and the states, so as not to damage the current social balance, they will tend to dilate them.
The second idea -more daring- is that the ECB does not get rid of its current debt portfolio of the states -and even increase it- to finance part of the future investments. According to De Grauwe, the ECB can fight inflation through interest rates, but it should accept that government bonds, which would finance increased public investment, are an obligatory commitment of all the European institutions. Ok, but the ECB is very jealous of its independence, which it believes is key to stability and confidence in the markets.
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These are proposals that should be discussed in depth, because with regard to the finances of the states and the EU irresponsible liberality is just as dangerous as an orthodoxy that does not contemplate the great challenges of the future.
The fact that Catalan economists intervene in the debate confirms that Barcelona is a European capital that wants to count. Actually, Antoni Castells, Josep Oliver, Martí Parellada and Gemma García have written an open letter to the person who will be both Spanish president and president of the European Council next semester. We’ll see what he does on this key issue. And if to weigh in Brussels agree consensus with Meloni, Wouldn’t it be smart to achieve them with the opposition party as well?