It wasn’t that bad. At least when analyzing the new formulation of the Stability Pact, released by Ecofin on Wednesday night, Italy brought some positive elements. Of course, it could have gone better, but the “best possible compromise”, as defined in the agreement, did not trap the country. The first aspect that should not be underestimated concerns the debt and the percentages to be applied to reduce it in the coming years. The rules of the Stability and Growth Pact that will be withdrawn provide for the reduction of 1/20 of each year the difference between the level of debt in relation to GDP that the country records (140% for Italy) and the limit of 60% % percent provided for in the Treaties. Until now, the application of this rule would have implied a reduction in the debt-to-GDP ratio of 4 percentage points per year. The new formula envisages a “smoothing” with an annual decrease equal to one percentage point for Member States, such as Italy, with debt exceeding 90% of GDP (while it is just 0.5% for those with a debt between 60 and 90%). of GDP).
Not only. The reform also provides that the reduction must be guaranteed only ex-ante, which means that, ex-post, if the economy performs worse than expected, even if the rule is not respected, there will be no need to intervene and infringement proceedings will not be initiated. Finally, the one percent reduction will be averaged over the adjustment period (4 or 7 years) or, for countries subject to the excessive deficit procedure, from the year following the year of exit from the procedure and until at the end of the adjustment period. Deficit rules also change. Current rules foresee that each State converges to its medium-term objective, defined in terms of structural balance, at an established speed that takes into account the country’s debt level (above or below 60 percent) and the cyclical phase of the economy. In the case of Italy, the current medium-term objective is a structural budget surplus equal to 0.25% of GDP and the speed of adjustment (i.e. by how much to reduce the structural deficit each year), given the expected economic situation for next year, it would be equal to 0.6 percentage points per year in terms of the global structural balance.
The reform, however, foresees that fiscal adjustment will continue until a structural deficit level of 1.5% of GDP is reached. Beyond the technical detail, the new rules de facto alleviate the restriction on the structural budget balance introduced by the Six-Pack and the Fiscal Compact (and incorporated into our Constitution), thus creating a fully operational fiscal space of around 35 billion (in current values). . The reform also introduces important elements of flexibility. The general escape clause is maintained in the event of a serious economic recession in the Union. To this is added a national safeguard clause, in the case of exceptional circumstances beyond the control of the Member State.
“Tolerance” margins are foreseen in the case of deviations from the expected path for the growth of net primary expenditure, deviations that, within certain limits (equal to 0.3% of GDP at an annual level and 0.6% at a cumulative level) , will be recorded in a control account, but will not lead to the opening of infringement proceedings. As requested by Italy, the control account will be reset at the end of each Plan. The reform also introduces important elements to encourage investment and reforms. In particular, the adjustment path can be extended for up to 7 years, following a program of investments and reforms that improve the country’s fiscal sustainability and potential growth rate. As requested by Italy, the extension will in fact be semi-automatic when the Member State’s Pnrr, as in the Italian case, contains ambitious reform and investment programmes.
Source: IL Tempo
Emma Fitzgerald is an accomplished political journalist and author at The Nation View. With a background in political science and international relations, she has a deep understanding of the political landscape and the forces that shape it.
