Scenario for relaxation of the Stability Pact – What this means for Greece if it goes ahead

The ongoing crisis, the peoples’ reactions to the accuracy, the coming winter and the looming retreat of Germany from the hard fiscal line, precisely because of the developments, the economic landscape in the European Union appears to be changing, to a certain extent, as the need to support societies and economies seems stronger than in any other period.

After almost three years pandemicshe came energy crisis and the war in Ukraine, driving the European economies to the canvas, at the same time that forecasts give a long horizon to the resolution of the problems that have arisen and which appear to be only the tip of an iceberg moving at breakneck speed, threatening the same the European edifice.

Faced with the looming worsening of the crisis, the Commission, as revealed by the German Handelsblatt, is preparing to proceed with an extremely important and critical proposal. The relaxation of the Stability Pact, from the Maastricht Treaty, which limits the public debt of countries to 60% of their GDP, with measures and surveillance for those countries that are not within this margin.

Greece is one of the countries experiencing the restrictive conditions of the Stability Pact, as is Italy, but also Spain. What does a possible readjustment of the rate from 60% to 90% of GDP, as rumored, mean? It means oxygen for the internal economy:

1) greater fiscal margin for governments

2) Greater support for the vulnerable

3) Greater support to businesses for investment and new jobs

4) More public investment

The Commission is expected to submit its proposals for a partial relaxation of the Pact in November, starting a debate that could change the landscape.

The Handelsblatt article

“The 90s are the new 60s” reads an article in the online edition of the economic magazine Handelsblatt regarding the Commission’s proposals for a partial revision of the Maastricht criteria. According to them, the Stability Pact still limits public debt to 60% of GDP, but for member states that already have high debt, a more relaxed “intermediate target” of 90% of GDP is set. The comment of the German newspaper: “The Commission capitulates in front of the sad reality. After the corona virus epidemic, the public debt reaches 186% in Greece and 148% in Italy. Portugal, Spain, France, Belgium and Cyprus also belong to the circle of ‘high risk countries’, with the government debt exceeding the 90% limit”.

But would it make sense to strictly apply the rules of fiscal discipline? As Handelsblatt observes, “to insist under these circumstances that the debt be reduced to 60% within 20 years, as the rules have been until now, would not only be unrealistic. It would also be economically inefficient, as a policy of excessive cuts would lead directly to recession. One can only welcome the fact that states have more time and more flexibility to reduce their debt.”

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