When the pandemic is finally over, Europe will have to decide on what should be done with state debts and public deficits. It will not be an easy decision. The fiscal rules that applied before the pandemic were clear: The debt of each country must not exceed 60% of gross domestic product while the deficit should be no more than 3%.
The pandemic invalidated both rules and liberated European countries from the fiscal straitjacket until 2022. In the meantime, the issue of debt has been exacerbated, as in the case of France, where it now exceeds 110% of GDP.
The question is what will happen after the pandemic. We shall put to one side the utopians who believe that debt is nothing but air and will be repaid with air, or that the solution is to print more money. The hope we all share is that there will be astounding growth, that the European economy will spring back after a period of contraction. There are already signs that can justify optimism.
To live up to the rules that existed before the pandemic will be no easy feat. Deficits that have reached insurmountable levels will not be reduced without restrictive measures and an obvious political and social cost. Weaning society off the artificial support will be similar to removing a patient who has spent months in an intensive care unit from mechanical ventilation, to use an example that has become all too familiar to all.
Europe is already facing a period of political upheaval that will make negotiations on these issues even harder. Angela Merkel will not be at the negotiating table – she might have been slow in reacting but ultimately, at the end of the day, pushed things in a certain direction. France will be trapped in its own political developments and continuous social unrest.
Greece is called upon to participate in this difficult negotiation. It has several strong hands to play. The reforms being promoted by the government, unprecedented for a country of the European South, give this government credibility. It is also a society that experienced the worst crisis since the Great Crash of 1929 and cannot afford to slip back. Adopting restrictive measures would test it beyond reason.
Greece also has the prospect of a “superweapon” on its side. The prime minister will have the advantage of being on the same side of the negotiation with Mario Draghi, a man who is very credible and reliable when it comes to economic issues and who has suddenly been thrust into the Italian premiership. In a year from now, the great negotiation will begin, and it will affect the fate of all European countries – all of us.