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Gentiloni, on the reform of fiscal rules due to the war in Ukraine: “The proposal from Spain and the Netherlands goes in the right direction” | Economy

The President of the European Central Bank, Christine Lagarde, talks with the Commissioner for the Economy (left), Paolo Gentiloni, and the President of the Eurogroup, Paschal Donohoe.
The President of the European Central Bank, Christine Lagarde, talks with the Commissioner for the Economy (left), Paolo Gentiloni, and the President of the Eurogroup, Paschal Donohoe.JULIEN WARNAND (EFE)

The proposal to reform the fiscal rules that Spain and the Netherlands have presented this Monday to the Eurogroup has been very well received. The European Commission likes what the document says. “It is going in the right direction”, the Commissioner for the Economy, Paolo Gentiloni, pointed out on Monday at the end of the Eurogroup meeting, in which all the finance ministers of the euro zone are represented. The Italian has also recognized that the initiative has caused him some surprise —pleasant— due to the identity of the editors: “Two countries that are usually in different positions [en temas económicas]”.

It’s been almost half a year since the European Commission officially reopened the debate to reform fiscal rules. The positions were defined even before. This summer, the Netherlands and other countries, of the so-called frugal, supporters of austerity, had already sent a letter to the Commission marking their limits in the debate. For their part, the countries of the South, more strangled by their massive debt, had shown their preference for greater tolerance with public spending so as not to stifle growth. And in the midst of this debate, a war has broken out in Europe that threatens to ruin the recovery from the coronavirus crisis.

The initiative of Madrid and The Hague breaks the usual frameworks in Brussels for these discussions, as Gentiloni says, which partly explains his praise. “Great value.” “Important contribution”. They are some of the adjectives used by the Italian, who when he was pointed out the fringes that remain open in the page and a half document, advanced by EL PAÍS, has justified it by saying that it is a “paper that indicates principles”.

Some of the points that are touched on in the text are stated in several of the documents carried out by other organizations, such as the design of personalized debt reduction paths, which gives an idea that even the Netherlands seems to forget one of the regulations of the toughest Stability Pact: the reduction of liabilities up to the equivalent of 60% of GDP at the rate of one twentieth per year for countries that exceed that limit, which can drown the economy of Greece, Italy, Portugal, Spain or France . This was noted in a proposal from the European Tax Authority. There is also a glimpse, without much specificity, of a better treatment for public spending that is allocated to the ecological and digital transition. However, it is much clearer, that fiscal consolidation plan is made in exchange for structural reforms, a demand of the frugal.

The president of the Eurogroup, the Irish Finance Minister, Paschal Donohoe, has also highlighted the positive aspects of the Spanish-Dutch initiative, although he has preferred to focus on the duties that it imposes on him. Namely: the points of the document that urge progress in the Banking Union and the Capital Markets Union.

Before Donohoe and Gentiloni spoke, the document was presented by the Economy Ministers of Spain, Nadia Calviño, and the Netherlands, Sigrid Kaag, at a joint press conference. They were also aware that their initiative was surprising due to the usual conflicting positions of Madrid and The Hague. “We must not put stereotypes”, has underlined the North European policy. For its part, the Spanish has highlighted that the main objective is “to seek consensus as a response to the pandemic and the war”.

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It is precisely the war that has cast a shadow over short-term economic prospects. Not so much as to lead Europe into a recession, as Gentiloni ruled out at the end of the Eurogroup meeting. However, he has disrupted the Commission’s plans to deactivate in 2023 the escape clause that allows suspending fiscal rules and alleviating the economic situation with public spending. The Commissioner for the Economy does not openly say that the situation will continue for another year. “We will see the evolution”, he has cleared. More explicit has been the Dutch Kaag, who has been very understanding that the clause remains activated next year.

Brussels does not fear second-round effects on inflation

After the war in Ukraine and the energy crisis, the biggest concern of the Community Executive is the evolution of prices. Inflation has been at levels not seen since the creation of the euro, after rising to 7.5% in March. The European Commissioner for the Economy, Paolo Gentiloni, explained that the figure hides a significant divergence within the euro partners. “Four states are experiencing double-digit inflation, while a couple remain more moderate,” he said. “Energy prices continue to be the key factor in inflation, reaching almost 45% last month,” said the Italian, who wanted to play down the issue. “Let me remind you that in January 2021, energy inflation was in negative territory,” he said without a hint of frivolity, as he acknowledged that “inflation is becoming more widespread.” However, he pointed out that “it is important to underline that inflation expectations remain anchored and that for the moment we do not see second-round effects.”

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