While the European Union is unlikely to change its debt and budget deficit ceilings for member-states according to its Stability Pact, economists speaking to Kathimerini present a number of solutions that could apply, having a significant impact on Greek finances too.
According to Philippe Gudin, chief European economist at Barclays, “an expenditure rule is definitely more relevant, and that’s probably what member-states will focus on when they negotiate ways to reform the Stability Pact.
“Obviously, the debate may also be influenced by the new coalition agreement in Germany. From the pre-agreement following exploratory talks, I understand that the coalition could decide to finance public investments dedicated to the green and the digital transition through a special vehicle which would raise debt on behalf of [German state bank] KfW or another public entity, with a guarantee from the federal government. This could be replicated at the EU level (and that’s actually more or less what is done with Next Generation EU). If you do that, you don’t really need to change a lot of the existing EU rules for national public finance,” argues Gudin.
What Zsolt Darvas, senior fellow at the Brussels-based think-tank Bruegel, proposes, is “to keep the 60% debt ceiling as the very long-run target, set country-specific debt targets for the next five years based on analysis and calibrate the adjustment in the next five years, focusing on the path of public expenditures.
“I see a meager chance of changing the 60% debt ceiling for economic and political reasons,” he says.
HSBC economist Fabio Balboni offers Kathimerini another suggestion: “Adjustments to the regulations, which only require a majority among countries, are more feasible, such as tweaks to the pace of debt reduction (for example accounting for the impact of the pandemic on debt-to-GDP ratios and of the different debt levels across countries) as well as increasing the importance in the assessment of compliance with the spending rule.”
He also points out that “it might be harder to change the structural budget balance rule, given that this has also been taken on board by national parliaments with the European Fiscal Compact.”