Europa: Do faroeste orçamental a uma nova ordem fiscal | vídeo

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Thank you I wanted to start by setting a bit the scene if that’s okay with you the question that we launched this debate around is is fiscal policy out of control and how to rein it back in So Philip let me start with you and then Lucha and then I’ll go to Margarita

Um so so it’s true that after the the covered years uh the debt has increased tremendously and uh and we uh we put the fiscal rules on on the sign so it’s clear that we need to uh to change track and and uh go back to uh to to make sure

That we have that sustainability and in a sense I think that what’s wrong with our fiscal framework is exactly this is that we lost track of what uh is uh what was important and what was the objective of fiscal rules which is to ensure that sustainability because in a sense uh uh

That’s the real problem of the collateral damage that one country uh can uh can uh can put on the others and that’s what we’ve seen during the Dior crisis and we’ve lost track of that and today again and related to your question the real question is to what

Extent are they ads are sustainable which depend on many factors and I’m sure we’ll come back to this which is not only the deficit or the debt level but also the interest rate the growth rate of the economy the inflation which is completely absent from from existing

Fiscal rules and so yes we need to take back control of this this issue but taking into account the fact that that sustainability is the core of the of the problem and so from that point of view I think that the proposals that have been made go in the right direction I’m sure

We’ll come back to more details but that’s the that’s the goal indeed that’s sustainability and that means that requires a quite holistic approach meaning not only these magic numbers that that we had but really trying to understand what makes the debt of a country sustainable and therefore does not put

That into risk the the collateral damage that that could be brought by a country which would which would lose that sustainability because what we’ve seen during the your crisis is that in this case other countries that’s part of what the economies would call an externality

Will have to uh to to help to make transfers and or it would put some pressure on the ECB to uh to uh to uh to help the country with the different programs we’ve seen although I do believe that actually a big change compared to what we had before is that

DCB has also moved towards a a a a stance where in some senses in charge of ruling out that crisis which are based on self-fulfilling expectations and and that’s important because in a sense what that means is that the fiscal framework of taking back you know fiscal responsibility means really looking at

The fundamentals which again depend on the interest rate on growth rate of course the the budget balance but in a sense what has been clarified and I think that’s welcome is that DCB should be in charge of taking out those crises which for example Portugal suffered during the Euro crisis which are mostly

Based on self-fulfilling expectations and speculation thank you Lucha where did the idea come from to reform the fiscal rules I mean you’ve sat through more than one reform in your previous hat well to begin with as as it happens in the institution there was an Institutional deadline so we were supposed to report

Every five years on the reform so clearly this gave the opportunity or even the necessity for us to review on substance we realize and I should stress that the reflection went on started well before the covet crisis the covet crisis I mean we should have delivered earlier as you as as you may

Know to discuss what was really necessary and what was not in a sense in the fiscal framework that we had in the light of the experience and so the idea if I can say it very briefly in term or high level principle and then we know that

There are many many details on which discussion are are taking place and we continue we continue as we had basically there are two high-level principles one is the one of fiscal sustainability the other is the one of national ownership fiscal sustainability for the reason that Philipp has argued indeed is the

Main if not only reason for having fiscal rule at the U level on the top of fiscal the fiscal rule that countries may wish or may wish not to have at National level namely the externalities the spillovers that and sustainable fiscal policy especially in the context

Of monetary Union may have on the rest of the currency area so this is the reason for having fiscal rule I mean the economic reason well National ownership because we should for we should not forget that member State remain fiscal sovereign excessive deficits but in reality without entering a complicated analysis

The EU does not have the power to to interfere in budgetary policy as it is in other policies for example with direct effect in the end is the government that make the budget so the idea is how best reconcile these two elements were attention I

Think you as you can see is is clearly is clearly possible I mean countries thinking of their own as a political typically political domestic calculation may not take on board enough the concern about sustainability but beyond this percubation so there is an element clearly a potential tension the idea was also

Of giving more freedom to countries that after all remain fiscal Sovereign I mean to pursue a fiscal policy according to their to their preference so this was the initial so uh just I don’t know just a minute more to to to develop on this on the fiscal sustainability clearly you

You can get there in many ways so you can say if you have a balanced budget the rule that is will be ensuring asymptotically convenience of that to zero and then you will not have problem of fiscal backing maybe the opposite of the of the central bank but clearly this

Puts a lot of constraint also on the policies that you can do so in the end the thought well okay why we don’t address the problem directly so instead of coming up with some magic number of magic formula why we don’t use the tool that with all things its imperfection exist namely depth

Sustainability analysis I mean to assess the trajectory of a country just to me to be uh to be specific in this respect if you have a number and I live aside the three percent which has a recognized value more or less is a kind of coordination point

You do have a problem in the con in the confrontation with one country so you should do this because you are at 1.5 percent away from the MTO of close to balance or in Surplus but then if you ask me as Economist now I can speak a bit more

Freely because I’m a foreign official so why a balanced budget then the answer is well because it’s a cool number you see you don’t have really much of a uh whereas is more difficult for a country say that finds itself in a very high debt position say Yes actually we think

It’s a good idea to keep our depth increasing so you bring the discussion with all this difficulty or more serious terrain by introducing the element of directly element of analogy of sustainability the other point that in part contributes was actually alluded to by the minister in his interview was the experience of

The recovery and resilience facility so we saw that there is opportunity I would not exaggerate that because in the case of the recovery facility we know there is a big pot of money and that encourages a Cooperative a Cooperative Spirit here we are not there

But we saw the potential of having say a dialogue with member state in order to help achieve a path which is own I mean it’s fashionable to say by the member State itself while satisfying a number of requirements essentially linked to sustainability and this also linked with

The issue of Reform which are a condition for the extension of the adjustment period uh according to the prefall proposal thank you Margarita we come to you I mean you had asked the commission to come up with a reform um quite a different one from what you

Had sorry from what you had proposed but can you give us a sense of how did you read it uh and is it answering to the need for reform okay first of all thank you very much for the invitation and thank you also the from The Sound

Thank you very much for the invitation and the politic also this is the good moment to discuss the to discuss to to have this debate it means when I listened to the the vice prime minister in my mind I had the idea it’s a Pity that he’s member of the Belgium

Government and not member of the European Parliament because he could be a very good reporter from the Epp political families so I don’t know I don’t know if all the members of Epp and are in your line so let me break a mini news yesterday I saw

That the parliament reached a deal on how to separate this fight through the parliaments I will be treated as a package the three fast combined And the reporter ship will be are between snd and Epp but sorry carry on yes of course because my my reaction so this is one

Point and the second point is also a link to the the to the calendar is and the minister already told of course we quote on the Belgian presidents and the Spanish because we’ll see what will happen with the Spanish presidency because I think that we need an agreement for October and maybe an

Agreement Council apartment for April so it means that it’s up to you to to have this agreement and I need to say also that your document the the the the the Dutch and the Spanish document together it was a base we can say for it was important for the preparation of the

Commission proposal so with Spanish presidents we will see but answering to your point first of all this proposal of the commission now is different that the commission had proposal in last November and we will arrive on this point but what is important in my view and the proposal of

The commission is a good starting point is because a commission accepted part of the main principles or the main principles adopted by the European Parliament the case by case more transparent more democratic accountability simpler more simple rules because the complexity is too big nowaday and more ownership from member

States and this ownership the minister already explained very well but there are another argument because why ownership is needed because the countries when we look to the respect of the country specific recommendation it’s it’s not the best one so it’s not it’s less than 30 percent so it means

That we need more ownership to convince the member states to respect the National Funds so this is positive the fact that there are the case by case and the fact that each member state will put on the table is its National plan for four or more years it depends

It means what the member states must do to achieve the the the the targets the national plan must can be revised if there are a changing in the government with elections for example this for the Democratic point of view is very important because give to the how the

Democracy is functioning in the member states so that at a new government with the new political program the new government can adapt to the National plan is also in my view a very positive thing and there are of course some limitations uh it’s it means in my view the main

Difficulty and it’s why in our view the rules are not are not completed is the fact that there are not a physical capacity I need to say that I feel more and more that this expression physical became or becomes a taboo it means like a constitutional treaty like federalism

Becomes a taboo but I think that we need an investment fund to support Investments this is it’s not I’m not the first saying this I listen to from um Chancellor trolls during his speech in British in a Prague University so this investment capacity is needed in my view because it’s clear the

Difference including the respect of the the the the compliance with the country-specific recommendation how things are working now with Next Generation you and before there are a big difference and of course we have this experience it’s why it’s also positive the fact that the proposal of the commission is inspired on the

Governance of the rrf mechanism and this investment is need why is needed to support uh public uh public goods namely the four main European priorities it means social pure European social pure defense climate transition and the digital transition by the way it’s the the commission on the examination of the

National pants will have will look to the Investments made on these for priorities and it’s not a golden rule but is the treatment and the how the investment on these four areas is treated so this is the specificity finally I’d like to say that the power of the commission there are

Some criticism saying that the the power of the commission is too big I don’t support exactly this idea but this must be qualified it means with an axis that commission is now putting on the table I think that the framework how the commission will assess the national

Plans can control in a way the power of the commission so we have this proposal this is not ambitious enough because there are not the fiscal capacity or an investment capacity there are some safeguards so it means that the reduction of their 0.5 on the deficit is a problem

It’s very it’s a good news that Belgium can do it in the the the the the calendar but I think that some member states will have this problem and there are also a difference comparing to the November proposal it means the reduction at the depths before the end of the

National plan so now the role of departments uh we need to give its core decision one of them the first one is called decision department is committed to have an agreement and to work hard to find a compromise respecting the calendar because new rules are needed for the

Next year for the next budgetary period so we need to have this compromise but we have a problem it means we have a problem it means a difficulty for the adoption of the report it means the elections in one year because until now every all the political groups the main

Political groups the first goal it was to find compromises foreign since now I think that the priority is more for each political group to have a clear repositions before because elections in one year only to end I’d like only to react to uh the point on the depth sustainability of course I

Fully agree with you we but we need to have more balance between depth sustainability and sustainable investment so we can’t be in the same problem that we had before where economic growth it was almost zero on the last decades and public investment very very much so we need to balance both sustainable depth

I agree but to balance with the sustainable investment thank you I’m going to be a bit more strict in response time because I want to run through a number of topics with you um but so let’s come to some of the last minute additions to the proposal because

That’s reminded for our audience you had tabled an orientation I think it was an orientation paper or whatever it was called but essentially your communication setting out what the idea what the architecture of The Proposal was going to be like then a few months elapsed and at the last minute

After you left the Jack Finn uh some safeguards were added and now I’m gonna try to remember them all but essentially a requirement to reduce the debt level within the time Horizon of the plan a requirement that this should happen in the period of the plan so not

Backloading not leaving this for the last few years a requirement to comply with the 0.5 percent deficit reduction even when a country is not into an excessive deficit procedure I’m missing the force now I don’t know if you can help me but essentially these safeguards were presented and introduced in the

Proposal by the commission at the request mainly of Germany who felt that the as the orientation paper was not strict enough it did not give enough guard rails for that reduction and so now that you don’t have to speak with your official censorship anymore I would like you to give us the your

Assessment of the final proposal as it was presented well there are some differences between the communication and the legislative proposal as you said I mean these are the official documents that we are that we have in front of us in parties reflects the simple fact that the communication gives polish

Orientation and is therefore drafted in a language that is different uh from that of a legislative proposal which is a legal document but in part there are as you pointed out some more substantial differences and that essentially relate to extra requirement that are set out for the plants that should be assessed and

Eventually endorsed by the council and after that becoming a binding reference for National budgetary policies in the medium term which is an important Dimension I think the the minister was right to highlight this immediate their dimension Earth now we can only speculate I mean but you have done the speculation for me why

This elements were added in relation to the design in the communication uh probably given the position that member states made clear after the communication of the commission indeed there was a certain will to appease a concern a voice by some country notably Germany about the fact that the requirement were not stringent enough

Let me let me blunt on this I think I understand having gone through it for a long time the political mechanisms that brought about these changes at the same time my concern is that one risk of falling between two stools in the sense that but again here I’m speaking a

Respectator apparently German is not satisfied either I mean I don’t know whether the situation is 26 versus one as you put it to the minister who was more diplomatic but clearly German is not a beast whereas the changes that I’ve introduced put it bluntly do not make so much economic sense

Or in some cases are effectively redundant uh to what was already in the original design so at the very least at the very least we have a bit of a loss in terms of clarity of The Proposal because this has been as has been recalled one of the

Objective of The Proposal was to simplify if there is one thing on which everybody agreed about you Fiskar rule that they are too complicated and after that the different different views emerge now I mean I could go into more detail but I mean let me know because I I know

Myself if I get into this I could give you I could give a kind of lecture on each on every Point let me stress two points I mean at this stage one thing that is often forgotten and which is I think a very important legal point that

What matters in the end suppose that the the the reformer come to pass would be the adjustment path which is indoors by the council so this is what will matter so to give you an example from the excessive deficit procedure in the excessive definition which if you wish

Is the most binding of all the instrument we have there are a number of requirements for example a 0.5 minimum adjustment as a rule have you said that if you have a specific excessive deficit procedure and the council in its wisdom decides to tell a country well 0.5 is not necessary

In this case or in this year you can do 0.3 then this is what is binding once you have the decision of the council and what and for the purpose of the case what you read in the legislation becomes irrelevant once you have a decision so

This is one point so in a sense we should not get too much bogged down on some on some detail element bearing in mind what will be agreed and this will be this will be binding the other element and this is a bit more speculative if you want or if you want

Of you wish as a matter of interpretation is uh clearly this different requirement will have to be juggled together somewhere I mean there will be a job of interpretation and an appropriate hierarchy will be necessary where I believe but the key Criterion of sustainability so bringing the depth

On a declining or a prudent or ensuring that it stays a prudent level should should be prevailing let me give just an example on this very short very short yes very short one of the criteria that you mentioned that depth should be at the end of the adjustment period at the

Lower level at the beginning I mean now in economic 30s doesn’t make much sense uh okay but okay I live Philippe who is a professor of Economics to explain tax smoothing and and all that jazz as they say but let me be concrete take Estonia you know the

Country which is one of the lowest depth of Estonia now I’m not sure every figure of the match so around 20 of GDP are we serious that we are going to ask Estonia to present a a program where that must be lower I mean it may be that Estonian plants are

Such that given the rate of growth and the plantar of the deficit but if the Estonian have for example a program for a military build up just to give an example by chance a clear it is which would also deny the principle of sustainability because Estonia is among

The best of the class when it comes from into sustainability risk so the assessment would be well that would be a prudent level it seems almost that it seems no I wouldn’t say self-evidence clear to me that an elemental interpretation would be needed in order to avoid otherwise I mean patent self-contradictory

Self-contro conclusion and I stop here and maybe um as my reporting said the reason why Estonia is backed in the same country as everyone is that France actually did not want to have the same label as Italy did not want to be considered high that country so they requested the commission to actually

Delete this distinction that it had originally proposed high debt medium that though that everybody is treated the same result Estonia and France very different that levels but same category so Philippe let me come to you I wanted to spend the last few minutes and now I’ll be really strict don’t make me be

Mean um on what is the likely Landing Zone and actually we have talked about Germany we have a member of the parliament of the European Parliament about from Portugal but I would like to know a little bit more about what do you see as the debate being in France what

Are French priorities and what role is it playing you know because in Europe we know that if there is no agreement with France and Germany nothing moves so well through that France is in a particular situation because it’s clearly uh let’s be honest I hide that

Country now uh and it’s a high debt country which uh you know in in terms of the Dynamics of the debt we’ve seen the the the stability program uh Center uh a few a few weeks ago it’s really on the knife hedge situation ah in the sense that

It’s super ambitious in terms of reducing its government expenditures at a growth rate of 0.6 percent per year in the next five years which has never been done in France for the last 20 years so I think that one problem for France is that France lacks credibility on on its

Physical path and and and this I think weakens the the French position uh in in Europe I mean a clear problem and in some sense this is one of the the German concerns which we have to take seriously is the lack of trust and the lack of trust towards in particular one country

Which is which is France and I’m not going to talk about the others but I think that there’s the same lack of of trust and it’s true that from that point of view um when we see what was what has happened uh you know we’re uh you know

We’re lowering taxes in France uh even more so so it’s not conducive to to debt sustainability from from this point of view we’re doing a bit better in terms of growth than maybe what was expected uh but at the same time we’re not reducing uh uh fast enough I think all

The expenditures which are related to the energy crisis so from that point of view I think France is not in a great position to uh to uh to to put its position in I mean it’s a political position and political arguments at the same time you have to see that in France

Itself uh the the French position is uh is not unanimous in in some sense the lack of clarity the complexity of the rules and Nisha was saying I think we can land towards a situation where yes maybe we’ve made some progress towards some clarification but the compromise will be such that you

Know with all these little things which have been added you know it’s not going to be completely consistent I’m afraid but in a sense I would say that in some parts of the government you know this lack of clarity this uh absence of simplification is is in some sense

Welcome because France for a long time has been able to circumvent uh fiscal Rules by using this this complexity so um I don’t I mean you know as you as you understand I’m not I’m not representing uh the the French comment but I I do think that with better I mean the the

The I think the main objective for the French government today should be to increase growth from that point of view I think it’s not doing so badly but in terms of its fiscal plan I think we we lack we lack credibility and in particular on on on government expenditures

So so we’re really on the knife edge I mean the ambition of the the The Pact is uh I mean that that the um the uh of what we sent to Brazil is basically stabilizing the debt and it’s not super ambitious and at the same time uh we are

It’s uh it’s based on an assumption that the growth rate of expenditure is going to be super low uh and and so I’m I’m a bit afraid about this uh the the um the credibility of the the French uh the French position at the same time I’m all

In favor I’ve said that before of of having more flexibility at the country level having more ownership at the at the uh at the national level one thing I would criticize and I will and with that is that I I think that the commission position does not give enough uh power

To the National independent fiscal institution so it’s not going in the direction of giving more ownership at the national level which you know in France and in many other countries is a good excuse you know it’s the fourth of Brussels if we’re not doing the right

Thing no we should have a a I mean of course that system it is important for other European countries but it’s also important mostly for for yourself and and so that I think is a criticism I would put on the commission uh the commission proposal thank you just a

Technical plea to please remain seated because we are recording the event and I was reminded to ask our audience to remain seated um I wanted to have one more question in a very busy round uh on what is missing um in the text or what will be left to

Interpretation and here I’m referring to the investment and reforms which the minister earlier said will be part of the assessment on the sustainability there was a push politically from a number of countries to include defense as one of the eligible expenditures under this extension of the timeline there is obviously also climate and

Digitalization which remain in priorities literally 30 seconds starting from Philippe Margarita and then Lucho can you tell me you know how do you see this positively or critically um I feel it uh positively it means the the capacity of the member states to do Investments and it’s not parazar uh but

The commission decided to include the four pillars where there are I don’t want to use the word but I don’t find a better word tolerance concerning these four Investments and I think that the main goals of this revision is to conciliate as I said before the sustainability of the debt with

Investment because it’s clear that since 2010 we made some progress creating the Next Generation you for example having an European answer and this was very positive to react to Coffee to rewound the European economy the national economies but we need to use this learning for the future and it’s why we

Feel that we need to give to member states the capacity to invest and we need to look with the figures today of course we spoke on the situation in France but average at EU level is 90 percent so uh more than 90 percent so I

Think that we we can’t be blind and to look to these figures as this was not a problem and finally I think that what is needed now is to have to have credible rules for now and for the future to give pre visibility because the point the problem with the masteries rules it

Was some modifications later on and so on but it was clear including the fork of it that the rules was not were not adopted uh adapted and it’s why after coffee the general Escape Clause was activated we need rules for now for a regular situation and for crisis to have

The capacity and to maintain The credibility of the rules thank you Philip your final thoughts so climate um I I hear the arguments of you know excluding climate investment from the dead sustainability I think it’s not right I don’t think it’s right because we need to finance this I mean if we

Finance these Investments through that this debt has to be sustainable so it’s not as if they disappear from the financing problem however I think that the the right track would be either to analyze that sustainability and the the timeline of the necessary public investment in for climate into the the

Analysis what I was calling for holistic analysis of that sensibility and then a third track which I think is the also a very good one is the the fiscal capacity at the European level this is typically an investment that has spillovers or clearly your climate is not a national

Issue it’s not even a European issue but clearly that that would be my uh my uh my best solution is to go through a physical capacity to finance more climate Investments thank you and then the final question for Lucho why is there no physical capacity in the

Proposal and also if there was one how should it be designed what why there was no physical capacity I think I mean the the commission I mean people in the commission have more Authority than I have been rather clear on a number of occasions it’s already a

Very contentious file as we have heard so add into it the fiscal capacity would be ensure that we would go nowhere because we know how controversial the issue is on the top of the fact that as has been recalled at the moment I’m in the the

Error f is being deployed so at the very least one could say let’s see the result that the ref which is if you wish a fiscal capacity sui generis yields before we can take stock of that before we can we can decide now how should it be so

Not for now for the future let me say there has been a bit of a change in the debate uh until not long ago the focus on fiscal capacity was on a stabilization capacity so there were a lot of plans made well including by economies the commission

Elsewhere bearing in mind well there is a single monetary policy there is a problem of stabilization so you need more recently I think the idea has evolved and perhaps there the RF has been instrumental in this shift in having a new fiscal capacity aim at the provision of public

Good and there are two different things we’re clearly public good there’s a more medium long-term perspective I mean it’s not you don’t you may have secret stabilization you may not have depending on the phase of the cycle in which you deploy these expenditure team seems to be possibly politically more promising

If we agree that climate change is the biggest challenge is perhaps the one that it makes more sense in order to reconcile the point I mean the tension mentioned by Philippe between ensuring sustainability of that at National level and delivering the necessary investment within a certain time frame or moreover

To avoid the worst outcome in terms of climate change so this seems to me but this is a bit of an opinion I mean not clearly an official position possibly the most the most problem promising Way Forward but not for now for the reason that I try to explain

Thank you all very much I’m afraid that we’re already a little bit over time so I would like to thank our panelists for a fascinating discussion and please give us a round of applause I will I haven’t picked questions from Slider because I could only read three and I

Think that they were addressed by the panelists so forgive me if you haven’t heard your your question read but I hope that you found your answer I just wanted to quickly read the results of the poll that we asked you earlier so the question was should the EU change its fiscal policy paradigm

49 of you answer that yes by focusing on economic stability as its main objective 43 answer yes but by focusing on mainly on promoting its competitiveness and eight percent said no the current Paradigm should be maintained with manner adjustments without redirecting priorities so thank you all of all

Thanks Peter for joining us speakers for joining us and to the audience for watching here and online and thank you for the from the South Francisco manildo Santos for making this event possible we’d love to hear your feedback so please reach out to me or to

My colleagues and feel free to email us about the event at live at politico.eu finally you can check all of our political events for the website is www.politico.com thank you very much thank you foreign