The times of free rein in fiscal spending are coming to an end. It was a chronicle announced that yesterday the Eurogroup finished certifying the commitment of all member countries to begin next year a stage of “decided, gradual and realistic fiscal consolidation”. A strategy that should serve to strengthen sustainability and rebuild fiscal cushions for difficult times.
The conclusion comes after pointing out that the expansive fiscal policy of 2020-2022, certainly very useful to protect the vulnerable population, also entails an additional burden on public finances. And now we need to act, especially to deal with persistent inflation and the costs of borrowing.
It is a return to the fiscal orthodoxy that the Eurozone had temporarily abandoned. For this reason, it is a question, from the start, of avoiding permanent measures that lead to an increase in the deficit, something that had already been called for in previous meetings of the Eurogroup. Here they refer to avoiding generalized aid to cope with the increase in energy and that, in case it is necessary to maintain them, they are 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 that at the end of June claimed that next year the euro zone should tighten fiscal policy more than had been planned to help the ECB fight inflation and prevent interest rates from rising too high.
With reference to the next adjustment, the first vice-president and Minister of the Economy, Nadia Calviño, maintains that “Spain has done its homework” and has followed “a responsible fiscal policy”. He also added that “it is essential to avoid confusion, open up uncertainties or deteriorate the confidence of the markets and financial institutions”.
This return to fiscal orthodoxy is a decision already agreed upon, but another, more complex one, is how to return and with what rules. Two very clear groups of countries are defined here. One, with Germany at the forefront, which calls for hard discipline applied without delay, and another, with countries that propose gradualism and greater flexibility and adaptation to each situation.
In this area, Spain, which is taking the presidency of Ecofin today for the first time, has put forward a proposal to seek a consensus, so that, if it is achieved, technical work can be done during the summer and that at the informal Ecofin in Santiago de Compostela in September, the ministers will discuss it.
The proposal consists of four points, which focus on institutional balance, common fiscal criteria, a fiscal space for investments 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 the Vice-President and Minister of Economy, Nadia Calviño. In the proposal, to which La Vanguardia has had access, it is pointed out that extra work is needed to define the common fiscal criteria that allow sufficient debt reduction 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”. In other words, that the fiscal effort is compatible with growth.
It is also requested to further mature “the relevant factors for opening an excessive deficit procedure and its control”. It is a language typical of an attempt to find a consensus between distant positions.