French President Macron and Italian Prime Minister Draghi Advocate Reform of European Fiscal Rules

French President Emmanuel Macron and Italian Prime Minister Mario Draghi advocate reform of European fiscal rules. Yes, they argue the national debt must be reduced, but the rules should not “prevent us from making all the necessary investments from now on”.

 

“Just as fiscal rules have not limited our response to the pandemic, so they must not prevent us from making all the necessary investments from now on,” French and Italian leaders said in an opinion piece published on Thursday’s website Financial Times.

The content of the message comes as no surprise. France will take over the rotating presidency of the European councils of ministers on January 1, and Macron had already made it clear when presenting his program that he wants to reform the so-called Maastricht criteria a priority.

The Maastricht criteria, established in 1992 with a view to introducing the euro, stipulate that the Member States must limit their debt to 60% of their gross domestic product. In addition, the budget deficit should not exceed 3 percent, but that discussion “for or against the 3 pc” has already been labelled by Macron as “outdated”.

The debate will come to the fore next year anyway. European fiscal rules were put on hold at the start of the corona pandemic in March 2020 because member states had to incur huge expenditures to keep the economy afloat. However, the intention is that the rules will be reactivated from 2023.

In the meantime, the pandemic has only increased the debt mountain of countries such as France (about 115 pc) and Italy (about 150 pc). “We need to reduce our debt level. There is no doubt about that, but we should not think that we will achieve this goal by raising taxes or making unsustainable cuts in social spending,” Macron and Draghi said.

The two leaders call for more room for manoeuvre to make strategic investments that are “necessary for our future and sovereignty”. “Fiscal rules should be in favour of debt incurred to fund investments that unequivocally benefit future generations’ prosperity and long-term growth,” said Macron and Draghi, arguing that spending like this contributes to economic growth long-term debt sustainability.

The message from France and Italy, who already strengthened their ties in a new bilateral treaty last month, is addressed to member states that have traditionally been more committed to budgetary rigour. This concerns countries such as Austria, the Netherlands and the Scandinavian countries, which were previously reluctant in the negotiations about the corona recovery fund of 800 billion euros and also put the brakes on this debate.

But it is, of course, also about Germany, where the new Chancellor Olaf Scholz in his coalition has to find a balance between the reform-minded green flank and the budgetary stricter liberals. Visiting Draghi this week, Scholz stressed that the pandemic has shown that current fiscal rules are already flexible.

According to the Elysée, Macron wants to “make a quantified estimate of investment needs” at an informal meeting of the heads of state and government in March. On that basis, consideration should then be given to the evolution of competition rules, trade rules and budgetary rules, “which must be adapted to the challenges of this era”.

Whether Draghi will still be at the table in March is not entirely clear. However, his name is mentioned as a successor to President Sergio Mattarella. The elections will take place in January. Presidential elections will be held in France in April.