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Social peace in Europe requires a return to fiscal discipline


The author is the President of the Bundestag, the former Minister of Finance of Germany

98 years ago we on Maynard Keynes wrote: “In the long run, we are all dead.” He believed that short-term economic intervention was necessary to stabilize the economy during the crisis. New incentive programs, including: EU Post-Epidemic Rehabilitation Fund, are in line with this tradition. I was in favor from the beginning, to the surprise of some people.

During my time as Minister of Finance in Germany, I had: savings reputation as a principle. But then, as now, my goal was stability. Borrowing in a crisis makes sense to stabilize the economy as long as the issue of repayment is not forgotten. The need to repay the debt in the future is often overlooked. Many governments focus on the “easy” part of Keynesianism – borrowing and then delaying the repayment of their debts. This leads to a constant expansion of sovereign debt. Sooner or later inflation is shaking. Keynes saw it as a major threat, citing its potential to “undermine the existing foundations of society.”

Currency values ​​are under pressure in many parts of the world, including the EU. Here, more than anywhere else, is a debt-fiscal policy is combined with monetary means, Monetary supply in the Eurozone has increased en masse, without adequately adjusting to the increase in the volume of goods and services. This boosts the inflation expectations of businesses և private households. In this way, the eurozone is at risk of currency devaluation, which can practically stop the dynamics.

Already the consumer price index exceeds The European Central Bank’s “low but about 2%” benchmark. Central bankers are not alone in their alarm. Keynesian economists, such as Larry Summers or Olivier Blanchard, lament the crossing of the red lines of public debt, noting the possibility of rising inflation. The danger in real estate, stocks and works of art is already acute. The asset price index rose by 6.3% last year. Indeed, the quarterly growth rates even reached double digits. Much of the monetary progress made by the ECB is clearly invested in the capital or property markets, fueling speculative bubbles.

This is not a purely economic issue. It creates risks for the social structure. Most lenders in the United States are wealthy individuals. Government borrowing increases their wealth by widening the gap between the rich and the poor. Keynes once warned that profiteers will be the object of hatred. The gap between “having” and “not having” now poses a huge threat to social cohesion.

So we have to go back monetary և fiscal normality, The burden of public debt must be reduced. Otherwise, there is a risk that the Covid-19 epidemic will be followed by a “debt epidemic” that will lead to severe economic consequences. As their population ages, EU countries will, if they allow it, struggle to bring the United States և China into line with the level of productivity և competitiveness Excess debt jeopardize their financial flexibility. Thus, all members of the eurozone must make efforts to return to tighter budgetary discipline.

Experience shows that in countries with high debt levels, balanced budgets are almost inaccessible without external pressure. Remaining in their hands, members of the Confederation of States are likely to be tempted to incur debts at the expense of the community. I have discussed this “moral hazard” many times with Mario Draghi. We have always agreed that, given the structure of the European Monetary Union, competitiveness and sound financial policies are the responsibility of the Member States.

I am convinced that he intends to uphold this principle as Prime Minister of Italy. It is important For Italy և for the whole EU“Otherwise we will need a European body with the authority to enforce jointly agreed rules.” This will require changes to the contracts. And even without such changes, the European Commission is gaining more importance in this area.

A promising approach for Brussels would be the eurozone debt repayment pact, which is similar to the sinking measures devised by Robert Walpole and Alexander Hamilton. As First Secretary of the Treasury, Hamilton in 1792 obliged the new US states to provide good collateral, apply budgetary discipline, and reduce their debts. That was the focus of the often-mentioned Hamilton moment, not the occasional debt swap offered to the EU.

The debt repayment plan has worked, can it still work today? It provides a mixed “carrot-stick” strategy, as pursued by the IMF – another Keynesian legacy. I am sure that Europe will be wise enough to follow the British economist in this aspect of its doctrine.



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