1y ago

EU lawmakers approve overhaul of budget rules

p.dw.com

EU lawmakers approve overhaul of budget rules – DW – 04/23/2024

The new rules stipulate that a state's debt must not go beyond 60% of GDP and its public deficit must stay below 3%

Countries with debt at over 90% of GDP will be required to reduce it by 1% per year on average and by 0.5% when it is between 60 and 90%.

6 comments

This is just taking financing power away from governments and leaving it all in the hands of private banks. Not the right thing to do when we need public sector initiatives for co2 reductions and defense.
New rules sound like old rules. "Old" EU on average went above 60% right after signing original treaties without any serious issues so it seems like it was very flexible already too.
The worrying thing is that this doesn't even line up with modern economics / science. 60/3 limit is entirely arbitrary and based on 3 decades old wishful thinking.
- Afaik, there ECB was and is trying to lower /cap inflation. The logic being that the (pandemic) inflation ( and interest) rate was too high , and to avoid a living cost/ wage spiral.
  There will be many more expendirures to come due to, the energy transition, failing international trade, political instability, wars, climate catastrophe, migration, new virus problems, etc. If I were them, I'd up my budget reservation for " unforseen costs " to a 20% to be safe. It doesn't hurt to build some fat before difficult years.
  But, how do modern economics see this?
  
  You're right that it's preferable to lower debt when conditions are right but we're exact opposite situation. Green transformation, military spending, recovery after pandemic are critical expenditures. Green transformation is an investment that's going to pay for itself so artificial ceiling is just dumb. Without military buildup everything could be for nothing.
  Neokeynsian or MMT economics would say that debt ceiling should reflect multiple factors but the currency you're borrowing in is a pretty important. We've also learned time and time again that austerity destroys economies, livelihoods and benefits those that are already wealthy. You have to invest to recover unless you plan on closing down the shop entirely.
  For example, Polish debt is at ~50% of GDP at the moment (and that is after being much lower prior to pandemic). 80% of that debt is in PLN so were essentially borrowing from ourselves and repaying ourselves. Yet it's becoming a big deal that our temporary military expenditures are pushing us over 3% yearly limit. The whole policy is divorced from reality and kneecaps European economies. One of economists I follow calls it financial anorexia.
Hey, I've seen this one!

6 comments