The best way to defend our social model and defend our sovereignty.
The Covid-19 crises in 2020 and the energy crises in 2022 have weakened the public finances of many European countries to such an extent that today, they have generally not yet recovered. pre-crisis state. If faced with the violence of these two shocks, the public authorities had no other option than to support, “whatever the cost”, their economy and their population, it is now essential to take advantage of the economic improvement that Europe is experiencing to restore the balance of public finances.
In 2020, the Covid-19 crisis led to a deep recession and a sharp increase in public spending, which had the consequence of widening budget deficits, which notably reached -13.4% and -14.3 respectively. % of gross domestic product in Italy and France. Fortunately, financing these deficits did not pose a problem at the time because the yield on 10-year European sovereign bonds was close to or even less than 0%, thanks to the accommodative monetary policy of the European Central Bank (ECB). ). Thus, member states were able to finance themselves almost free of charge but also without constraints, since the European Commission had temporarily freed them from their obligation to comply with the constraints of the Stability and Growth Pact.
In 2022, Europe unfortunately had to face a second shock, energy this time, which certainly had a lesser impact on the economy and public finances than Covid-19, but which forced member states and the European Commission to extend their exceptional budgetary measures even as the ECB significantly raised its rates from -0.5% to 4% to fight against inflation induced by the rise in energy prices. In this context, the financing of deficits has become significantly more expensive since the interest charge on public debt increased from 1.5% of GDP on average in 2020 to 2% in 2023.
Social justice also means ensuring that the debt burden is not increased for future generations.
Today, even if the ECB lowered its key rate in June and should continue to do so in the coming months, most economists believe that it is unlikely to fall again to the level that prevailed during the crisis. Covid-19, in particular due to structurally higher inflation than at the time. The financing costs of European states are therefore expected to continue to increase in the coming years.
From this perspective and more generally to ensure the sustainability of public finances, it is therefore essential to take advantage of the current economic improvement to restore budgetary balance and thus strengthen our capacity to face the many challenges to come such as the aging of the population. or climate change. This is notably the opinion of the European Parliament, which voted in April for a reform of the Stability and Growth Pact, as well as of the European Commission which, on the basis of these new rules, has just activated a procedure of excessive deficit against 7 European countries including France and Italy.
If the quantitative criteria of the Stability and Growth Pact remain unchanged, namely ensuring that a deficit and public debt are maintained at 3% and 60% of GDP respectively, member states now have more time and flexibility to comply with it. So depending on the reforms and structural investments that they make, they will have between 4 and 7 years to comply while the annual budgetary effort will be of the order of 0.5% of GDP per year.
The reintroduction of the Stability and Growth Pact comes at an important moment for Europe since, as we observed during the last European elections, many political groups are now advocating a sharp increase in public spending and wish to free themselves from European rules to increase social spending and/or regain their sovereignty.
This would prove very dangerous for public finances because beyond hypothetical sanctions from Europe, it is above all the sanction of the financial markets that should be feared. The difference in financing costs for France and Italy compared to Germany following the dissolution of the National Assembly in France illustrates this perfectly.
Today it is therefore good to remind all those who want more social justice and national sovereignty, that the best way to achieve this is in particular to control our debt to avoid seeing our budgetary margins, and therefore our capacity to maintain our social model, disappear in charge of interests and have our internal policy dictated by the financial markets. It should also be added that social justice also means ensuring that the debt burden is not increased for future generations.
I am therefore convinced that despite the sanction of excessive deficit procedures which marks the end of “whatever it takes”, the stability and growth pact strengthens Europe and that a stronger and better integrated Europe is the best way to protect our social model and defend our sovereignty.
Source: The European Commission, June 2024
