Athens’ proposal for changes to the Stability Pact

By Tasos Dasopoulos

The total deletion of the debt and deficit fiscal rules as they apply today is the basis for the new modern fiscal rules, which will be discussed in May, once France has a new government.

Greece has adapted to its points its proposal for the reform of the Stability and Growth Pact, based on the majority view formed within the EU, not only by the countries of the European South, but also of the European North.

A rough outline of what Greece is proposing now, was given by the Minister of Finance, Mr. Christos Staikouras, at the Capital Link conference in New York, speaking to an international investor audience.

To begin with, he said what almost all EU countries admit. After two economic crises, wanting to enforce fiscal rules as they stand today does not make sense and will not give a good impression on the markets. If the rigid rules for a debt ceiling of 60% of GDP and a deficit of 3% of GDP were activated immediately, the vast majority of EU Member States would have large fiscal disparities. This, however, would give a picture of a crisis, which the markets would rush to discount.

The new element added by the Greek Minister of Finance is that the new fiscal rules should not require a forward reduction of the debt. The same is said by Italy, Spain, Portugal and France, as this would “stifle” growth and eventually, instead of accelerating, would delay the fiscal adjustment of the troubled countries.

He also stressed that fiscal policy should be counter-cyclical and investments should be protected. In other words, countries in stagnation or recession should be allowed to accelerate public investment, which, however, should not be taken into account in debt and deficit. This was also a key part of the Netherlands-Spain joint proposal presented at the last Eurogroup and ECOFIN.

The Commission proposal

Finally, he said that Greece supports a framework of rules that promotes the “ownership” of fiscal adjustment plans, a medium-term approach to fiscal supervision, as well as the creation of a central budgetary capacity. This part of the Greek proposal incorporates in advance the relevant proposal that the European Commission is preparing to make public. The proposal provides for adjustment programs that will be specialized based on the specifics of each economy and take into account their economic cycle.

With the “Central Fiscal Capacity”, Mr. Staikouras brings back the issue of the permanence of the Recovery and Resilience Fund. This would give any debt-ridden country the opportunity to be rewarded with Community investment funds that would bring it back to growth and accelerate debt and deficit reduction.

The latter has no supporters in northern European countries who insist that the Recovery Fund should be an emergency intervention. In addition, there are countries (such as Germany and Finland) which in the general debate on changing fiscal rules can only discuss a simplification and by no means radical changes.