Debt headache
The issue of European public debts has been frozen by the pandemic. The issue may return with a vengeance
They were already largely contested, the pandemic will have finished them off… The Maastricht criteria on budgetary and debt convergence (the (in) famous 3% and 60% of GDP), already so disputed by some, have been buried. The new criteria will undoubtedly be the subject of tough negotiations next year before their implementation in 2023.
Because the tea towel is already burning between European “cicadas” and “ants”, the former calling for more “solidarity”, the latter for more “discipline”. The implementation of a European recovery plan, the issue and constitution of a ‘common’ bond debt – which should lead to the establishment of its own tax resources – were welcomed by some as proof that greater coordination can only benefit everyone and by others as a signal of greater scrutiny and control over unacceptable national finances. In either case, for lack of clarification, disenchantment looms.
With the Greek crisis, it became clear that a monetary union was more or less accompanied by transfers between member countries.
The Greek crisis was a first painful warning during which it became clear that a monetary union was already accompanied by transfers between Member States. Clearly, the threat of one member’s exit from the common currency area, jeopardized the entire organization.
The proponents of the imperfection and incompleteness of the single monetary area were proved wrong, but at the cost of heavy sacrifices and violent adjustment constraints for the countries concerned. The aftermath of this crisis is still being felt, while the European Central Bank has yet to intervene to ensure equal access to liquidity within the euro area. The “whatever it takes” has only been prolonged.
Exiting the pandemic, France joined the “Club Med countries1” of the euro zone; those whose debt exceeds 100% of GDP. As a heavyweight and driving force of the euro zone, France is thus at the forefront of the upcoming negotiations, driven by necessity more than by reason. The “frugal” countries will be able to point out the failures of their partners, at the risk of provoking a new crisis of confidence among investors, and weakening the trade and monetary union, the central pillar of European growth and resilience.
More solidarity demanded will rhyme with more, always more, control to bear, and less sovereignty to exercise.
There is no doubt that the review of the budgetary convergence criteria is a sine qua non condition for the pursuit of the European project. That will be the occasion to recall the fundamental objectives of European integration and the considerable benefits that all have derived from monetary union for more than two decades, in the face of the world’s financial fluctuations.
For member states in difficulty, this renegotiation cannot be the way to avoid the necessary requirements of a takeover of their public finances. Relying on Europe, by transferring part of the management of the common debt to the Level of the Commission, only makes sense and if it makes it possible to lighten the burden of the efforts to be undertaken, not to escape it. Because more solidarity demanded will rhyme with more, always more, control to bear, and less sovereignty to exercise.
Beyond technical agreements of any kind, it is indeed an arrangement and solid political commitments that the Member States will have to find together.
1 See the article “Club Med France” of 29 June 2021
Original article in Allnews.ch dated Oct 5 2021. Cartoon by © Barret
