Macron and Draghi forge their own axis to reform EU fiscal rules | Economy

Draghi and Macron, on November 13 in Paris.
Draghi and Macron, on November 13 in Paris.DPA via Europa Press (Europa Press)

The French President, Emmanuel Macron, and the Italian Prime Minister, Mario Draghi, for weeks have shown a clear harmony on the future of the EU and, in particular, on its economic governance. And both are ready to lead an offensive to drastically transform the rules on taxation, investment and state aid that aggravated the first great euro crisis (2010-2014) and that threaten to frustrate or hinder the recovery after the pandemic. Paris and Rome are closing ranks and, according to several European sources, they do not rule out translating their alliance into a joint document in which they would collect their vision of the future of the EU.

The first gesture of rapprochement between Paris and Rome was the recent signing of the Quirinal Treaty. Macron’s visit to the Italian capital to sign this bilateral friendship agreement also served to lay the foundations of what should be a common document that faces the new challenges of the EU, from the creation of a true defense policy to the revision of the Stability and Growth Pact. But it goes even further: Macron has assumed the representation of Italy at the EU summit on Wednesday with the countries of the so-called eastern partnership.

The Franco-Italian initiative, which the Chigi Palace has refused to comment on, but has not denied, aims at the publication of a double-signed document in which the joint vision on the future of the EU is collected. The same sources point out that Draghi and Macron’s vision coincide on several points, in particular, regarding the need to review budget regulations and develop security policy.

The regained friendship between France and Italy after years of turbulent relations coincides with the reconfiguration of the map of alliances within the EU after 16 years of hyper-domination by Angela Merkel’s Germany. The departure of the conservative chancellor, replaced by the socialist Olaf Scholz, has set in motion the relocation of all capitals in a Union that, at least for the moment, will cease to have the inevitable axis in Berlin and will begin to be more multipolar.

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In search of Germany’s tacit support

The push of two heavyweights such as France and Italy, which account for just over a third of the GDP of the euro zone, aims to set the stage before the beginning of debates that will be fundamental in the post-pandemic era and the future political and economic governance of the EU. Spain already tried to promote an informal document in autumn (non paper in diplomatic jargon) that would link the reform of budgetary regulations with the creation of the recovery fund for the pandemic. The elaboration of this text, however, was postponed pending a new interlocutor in Berlin with the inauguration of the new chancellor. Brussels welcomes the Spanish contribution, as it already happened with the Next Generation Fund, but the European Commission itself asked Spain a few months ago to delay these proposals until the French presidency of the Union and after the elections in Germany, whose Tripartite will mark the degree of ambition of future reforms.

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Berlin is shy about reforming the Stability Pact. And Brussels wants France and Italy, with the tacit support of Germany and more explicit support of Spain, to allow changes of sufficient depth. Olaf Scholz, who has already visited Brussels and Paris, is scheduled to travel to Rome next week, according to diplomatic sources. Merkel’s replacement has been open to seeking a consensual solution to a debate on the fiscal rules that all capitals consider essential. France has already announced the convening of an extraordinary European Council in March to address the reform of the budgetary framework. An appointment that is anticipated as the first round of a tough but inevitable battle.

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The European Commission itself has already launched the debate on the reform of the Stability Pact and advocates introducing changes that adapt the budget surveillance framework to the reality of red numbers caused by the pandemic. The euro zone deficit went from 0.6% of GDP in 2019 to 7.2% in 2020, more than double the limit set in the Pact (3%). And public debt closed last year at 97.3%, well above the 60% limit. In a good handful of countries, including Italy and Spain, debt far exceeds 120% of GDP. With very large deficits and debt of this caliber, compliance with the Stability Pact is almost a chimera in the short and almost medium term.

The rules of the Pact, for the moment, are suspended. But some countries advocate reintroducing them in 2023 as they were conceived when they were released in 1997. An unfeasible idea for both Rome and Paris, who consider that the old Pact has become obsolete, according to the document that they already have closed, according to the sources consulted, and which will be published after Scholz’s visit to Rome.

Brussels takes it for granted that, at the very least, the rule requiring a drastic reduction in debt levels above 60% must be suspended. And it is not ruled out temporarily raising the tolerated level of debt (it has been mentioned reaching the 100% bar) or excluding certain investment items, such as technology, environment or defense, from the computation of the red numbers for the purpose of the application. of the Covenant. Spanish ideas go along the same lines, but the Spanish Government remains, for the moment, on the sidelines of that debate, waiting for the Franco-Italian proposal to crystallize and Berlin to decide more clearly, according to the sources consulted in Madrid .

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The supporters of reforming the Pact, including the European Commissioner for the Economy, the also Italian Paolo Gentiloni, are aware that they need to generate the necessary critical mass in the Council of the EU to carry out the necessary changes. In a recent meeting with Italian deputies of the European Affairs committee, Gentiloni suggested the idea of ​​forging alliances to overcome the foreseeable resistance of some northern countries (Holland, Austria or Finland) to what they will interpret as an open door to wasteful spending. public. “The more countries [a favor]the better ”, Gentiloni pointed out during the aforementioned meeting.

The Italian commissioner, according to European sources, has in mind an initiative to agree on a transition period that allows passing from one standard to another without the trauma that the reintroduction of the old Stability Pact could entail.

Macron himself pointed out last week, during the presentation in Paris of the program of the French presidency of the EU (from January to June 2022) that “we must return to common budgetary rules, but we cannot pretend nothing had happened” . The French president considered the Stability Pact passed and demanded a new framework that allows the massive investments that will require both the energy transition and the consolidation of a digital economy. “The Europe of full employment is the Europe of peace and prosperity,” proclaimed Macron. And he closed, in theory, the era of frugality. “If for this it is necessary to invest 100,000 [millones], it is done, because it is a political decision. It cannot be that the US or China invest 100,000 and Europe only 10,000 ″.

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George Holan

George Holan is chief editor at Plainsmen Post and has articles published in many notable publications in the last decade.

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