The times of the open bar in fiscal spending are coming to an end. It was an announced chronicle, which this Thursday the Eurogroup finished certifying with the commitment of all member countries to start a stage of “decisive, gradual and realistic fiscal consolidation” starting next year. A strategy that should serve to strengthen sustainability and rebuild fiscal buffers for difficult times.
The conclusion comes after pointing out that the expansionary fiscal policy of 2020-2022, certainly very useful to protect the vulnerable population, also carries an additional burden on public finances. And now it is time to act, especially to deal with persistent inflation and borrowing costs.
It is a return to the fiscal orthodoxy that the eurozone had temporarily abandoned. To do this, it is a question, from the outset, of avoiding permanent measures that mean an increase in the deficit, something that had already been claimed in previous Eurogroup meetings. Here they refer to avoiding generalized aid to deal with the increase in energy and that, in the event that it has to be maintained, it is strictly limited to the most vulnerable population.
The statement agreed by the Eurogroup is in line with the recommendations of the European Fiscal Council, an independent advisory body of the European Commission, which at the end of June claimed that the euro zone should tighten its fiscal policy next year more than expected, to help the ECB fight inflation and prevent interest rates from rising too high.
Referring to the upcoming adjustment, the First Vice President and Minister of Economy, Nadia Calviño, maintains that “Spain has done its homework” and has followed “a responsible fiscal policy.” She also added that “it is essential to avoid lurching, creating uncertainties or undermining the confidence of the markets and financial institutions”.
This return to fiscal orthodoxy is a decision that has already been agreed upon, but another, more complex one, is how to return and with what rules. Here, two very clear groups of countries are defined. One, with Germany at the forefront, which calls for tough discipline applied without delay, and another, with countries that propose gradualism and greater flexibility and adaptation to each situation.
In this field, Spain, which is inaugurated today as the presidency of Ecofin, has put forward a proposal to seek a consensus, so that, if it is achieved, work can be done at a technical level during the summer and that in the informal Ecofin of Santiago de Compostela in September, the ministers discuss it.
The proposal consists of four points, which focus on institutional balance, common fiscal criteria, fiscal space for investment, and mechanisms to ensure compliance. “We are laying the foundations for an intense negotiation that will allow us to reach an agreement before the end of the year,” said Vice President and Economy Minister Nadia Calviño.
In the proposal, to which La Vanguardia has had access, it is indicated that extra work is needed to define the common fiscal criteria that allow a sufficient reduction of the debt to be combined with the objectives of the reforms. It is also stated that it is necessary to “ensure appropriate incentives for reforms and investment, as well as the principles and mechanisms for an extension of the adjustment period.” That is, that the fiscal effort is compatible with growth. It is also requested to mature more “the relevant factors to open an excessive deficit procedure and its control.” It is a language typical of an attempt to seek a consensus between distant positions.
