Stability Pact, agreement on the new agreement. Commitment that satisfies everyone

The European Union reaches agreement on the new rules of the Stability Pact, the set of public finance rules that all Member States must respect. But it’s a bit like the First Republic elections in Italy: practically everyone won. So the first rule is to wait to better understand what is actually written in the official documents. Italy quickly implemented the requests for automatic extension of the repayment plan linked to Pnrr investments which, in a nutshell, translates into an account adjustment period extended from 4 to 7 years. Another point in favor is having considered defense as a relevant factor for the purposes of defining adjustments with the corollary that military expenses are not considered in the deficit and, finally, the deduction of interest expenses from the structural deficit until 2027. A advantage to the latter, which allows our country to breathe a sigh of relief because the weight of the growing cost of money has considerably increased the need for state financing. So, at first glance, the summary is that the principle of austerity remains but is being softened. This was enough for EU Finance Ministers to find unanimity.

Italy also gave its consent, in a “spirit of compromise”, as Economy Minister Giancarlo Giorgetti said. The new pact, he added, is “more realistic” than the previous one. Furthermore, he underlined, «Italy has achieved a lot and, above all, what we have signed is a sustainable agreement for our country, which aims, on the one hand, at a realistic and gradual reduction of debt, while, on the other, it looks at investments, especially from Pnrr, with a constructive spirit”. For Commissioner Paolo Gentiloni, if the reform adds “complexity” to the Commission’s proposal, it nevertheless preserves “its heart”, first and foremost “the balance between the stability of public finances and reforms and investments”. In short, for now everyone is also satisfied because what has been agreed is not the definitive version of the rules, which will now have to be negotiated in trialogues with the European Parliament, which must be concluded before the end of the legislature.

For Spanish minister Nadia Calvino, the reform is “balanced”, as it provides “four safeguards: on debt, on deficit, on countercyclicality and to protect investments”. There remain two aspects of the pact: corrective and preventive. The excessive deficit procedure does not change (the sanctions change, which are reduced to make them easier to apply), but the conditions that countries subject to the procedure will have to comply with change. To prevent the States that will be the target of processes next spring, including almost certainly Italy and France, from having to cut investments at a time when they need to be carried out, a form of flexibility is introduced into the text, through a Considering, therefore, the Commission takes into account the increase in interest expenses, evaluating the recovery trajectory to be agreed with the country, limited to the period 2025-27. Two horizontal safeguards are introduced, valid for all, imposed by German hawks, one on the minimum annual debt reduction (1% of GDP for countries above 90%, 0.5% for those between 60% and 90%), the another on the deficit, more complex, which was particularly problematic for Italy. Finally, military spending remains outside the deficit calculation.

Source: IL Tempo

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