On the one hand, there is the reform proposed and still under discussion by the European Commission to update the rules of the Stability Pact and make it more suitable for the growth needs of countries with high public debt, especially Italy. On the other hand, Germany’s counter-reform is now coming. If implemented as designed, in 2022, it would force our government to cut annual spending by about 20 billion compared to what has been done.
Berlin Counter-Reformation
In fact, Berlin wants parameters to be introduced to ensure that member states do not ‘run away’ from their commitments to reduce public debt. It is clear that this speech was primarily aimed at Italy and Greece, but also at Portugal, Spain, France and Belgium, whose public debt-to-GDP ratios are decidedly lower than ours. The German government’s proposal, imposed by the fierce hawk Christian Lindner (the leader of Italy’s “teamed” Liberal Democrats in petrol cars), provides a “at least” one percentage point reduction on the debts of all these countries. / GDP per year.
Source: commerceekonomisi.com
This rule applies only to countries with a ratio above 90% (ie those mentioned above), while for those with a debt-to-GDP ratio of between 60 (ie the maximum ceiling according to the current Stability Pact) and 90%, the reduction will be 0.5%. Adjusted for percentages, it is clear that such a rule would affect those who owe the most. As we said, if this rule were implemented in 2022, Italy would have to reduce its public expenditures by about 20 billion.
Of course, these are extraordinary years for the management of the accounts of European countries: With the epidemic, the Stability Pact was suspended, and with the outbreak of war, especially in Ukraine and Russia, almost everyone took advantage of exceptions to bypass investments and subsidies. energy crisis. But if you look at the historian, the commitment required by ‘German sovereignty’ is still huge. While it took Italy five years between 2014 and 2018 to reduce its public debt by one percentage point before the pandemic, Germany now wants to do so in just one year.
Net primary expenditure
But the rigor that Berlin proposes doesn’t stop there: as Politico writes, Olaf Scholz’s government also wants a “common quantitative benchmark” to ensure that annual spending does not excessively exceed that year’s growth. How does this parameter work? To explain this, we need to take a step back: the Stability Pact reform proposed by the European Commission, with the encouragement of Economic Commissioner Paolo Gentiloni, provides for the calculation of annual deficits (i.e. the ratio between expenditures and expenditures). GDP), we take into account net primary expenditure.
This expenditure is calculated by taking into account how much a State has spent in total during the year and subtracting the costs of public debt interest: in 2021 these interests weighed about 60 billion in Italian accounts just to get an idea. Also, discretionary measures on incomes and periodic expenditures for unemployment were excluded from this parameter (which, in any case, was also present in the current rules). The Commission’s reform proposal retains the 3% deficit-to-GDP ceiling, but the new calculation method will leave Italy with a much larger spending margin than the current rules.
open ceiling
In its counter-reform, the German government supports the use of net primary expenditures, but proposes a ‘fix’: the difference between potential GDP growth and this expenditure (again as a percentage of GDP) cannot exceed 1%. So, for example, if a country’s output growth is predicted to be 2% in a given year, that country may be spending only 1% of GDP (excluding interest on debt). To give an even more practical example, we can take as reference the year 2024, when the Stability Pact will (on paper) come into effect again: according to the latest estimates from Brussels, next year Italy’s GDP will only be ‘1%’ with Germany’s proposal. This meant a 0% net primary expenditure for the Meloni government: in other words, expenditures should not exceed revenue. outside the 3% limit.
In Germany’s counter-reform, the only lance in Italy’s favor was its exemption from calculations on the deficit of “additional EU programs”, such as funds spent on Pnrr. However, an exemption that can only be applied if the public debt falls by 1% per year. Whichever way you look at it, Berlin’s proposal seems designed to force the Meloni government to comply with EU rules and commitments.
Source: Today IT

Roy Brown is a renowned economist and author at The Nation View. He has a deep understanding of the global economy and its intricacies. He writes about a wide range of economic topics, including monetary policy, fiscal policy, international trade, and labor markets.