The government that emerges from the polls, whatever it may be, will face an external environment that, in addition to conditioning its actions, is characterized by strong contradictions. One of the most obvious contradictions concerns the fiscal policy area. On the one hand, Brussels is urging member countries to return to budgetary discipline. Even incorporating the proposal to make the objectives more flexible, adapting them to the situation of each country, a restraint effort seems unavoidable for the most indebted economies such as ours. At the same time, it is concerned about the effects of climate change and advocates a colossal investment effort of around 2% of European GDP up to 2030.
These objectives may coincide in the long term: decarbonization would help to relax the pressure on energy prices and some foodstuffs that are becoming scarce as a result of the drought, and would therefore generate the activity and public resources needed to reduce the deficit. But, in practice, the transition to this long term poses complex dilemmas in the current European governance framework. According to a much commented report by Pisani-Ferry on green transition, it is possible to both reduce the fiscal imbalance and increase green investment, but this would require draconian measures to cut other expenditures or raise taxes on the middle class, which are difficult to assume in our democracies.
The deficit reduction target could also be postponed, at the expense of the markets’ willingness to buy the debt issued by each country, in addition to what the ECB is amortizing as part of its liquidity drainage policy. In any case, this is a very unlikely eventuality politically. Another option would be to dilute the decarbonization targets, exacerbating climate stress and leaving the bulk of the effort to future generations.
Coherence, however, could come from an extension of the Next Generation program aimed at green investment and financed by pooled resources. This option, which seems to be the path preferred by Commissioner Gentiloni, would alleviate the fiscal-ecological dilemma, although without resolving it entirely since the pooled debt falls indirectly on the Member States. But above all, the Pisani-Ferry report highlights the minimum conditions for the effectiveness of such a European program: public investment must go hand in hand with greater legal predictability and an alignment of incentives for private investment in technology that serves environmental objectives. Such a policy should also be formulated at the level of the Union as a whole, rather than being a mere accumulation of national projects, a shortcoming that Next Generation suffers from. Therefore, in addition to agreeing on the proper design of the strategy, the member countries should accept the transfer of part of their economic and fiscal sovereignty to Brussels.
This step towards greater integration faces well-known reluctance within Europe, but the differences between the “frugal” core and the “wasteful” periphery have faded. Southern Europe is no longer necessarily perceived as a burden, either in terms of economic growth or budgetary discipline: according to first-quarter data released this week by Eurostat, Portugal is running a surplus and the Spanish deficit is falling to below the European average or even Germany itself. In our case, there is still a long way to go to consolidate the result, with a debt that still weighs 112% of GDP, one of the highest in the EU. But the tables could be turning. That, together with the urgency of the energy transition, makes it possible to approach the reform of European fiscal rules differently. This is therefore an opportunity, as well as a responsibility that will condition our economic strategy.