FRANKFURT (Reuters) – The European Union (EU) should centralize more of its budget spending to ease the burden on the most indebted countries and promote convergence, the head of the Dutch central bank said on Thursday. Klaas Knot.
The EU has introduced common borrowing and spending in the wake of the pandemic, but some countries, notably Germany, are resisting calls for a closer fiscal union, fearing that the German taxpayer will be forced to pay the bill for what is perceived as the fiscal irresponsibility of other countries.
Klaas Knot, president of the Financial Stability Board, says the entire EU would benefit because common spending reduces economic differences and provides a shock absorber in case of shocks.
“From a political economy perspective, it also makes sense to ensure the provision of European common goods, such as climate, energy or defense, at the European level,” said Klaas Knot.
“Joint budgetary spending could benefit not only countries, but also the Monetary Union and its citizens as a whole.”
Referring to Italy, Klaas Knot recalled that over the last 25 years, the country had generated more primary budget surpluses than the Netherlands, but that it faced higher borrowing costs and lower growth, so that fiscal discipline has not been able to narrow the gap between these two countries.
Since joint borrowing is less costly, eliminating part of the expenditure would mainly benefit countries with higher debt levels.
To prevent countries like Italy from wasting these fiscal margins, the EU should also implement stricter rules on national public spending.
“Greater budgetary room for maneuver at European level should therefore go hand in hand with less budgetary room for maneuver at national level,” said Klaas Knot.
“The role of fiscal constraints in disciplining fiscal policy is particularly relevant today, given that inflation is still too high and government spending continues to add to inflationary pressures.”
(Report by Balazs Korany, Corentin Chappron, edited by Blandine Hénault)
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