Since its inception, the European project has developed along the lines of two different but complementary visions: one, the idea of a geopolitical Europe with shared values and, to a certain extent, political priorities; and two, a common commitment to ensure economic stability and foster growth. The ambition to achieve economic and monetary integration shifted from aspiration to necessity with the Bretton Woods Agreement in 1971. Indeed, it became essential to activate new stability mechanisms, first by means of the “snake in a tunnel”, then later with the European Monetary System and the Treaty of Maastricht, and in 1999 with the Stability and Growth Pact, followed by the adoption of the common currency.
Since then, the situation has become much more complex, especially as a result of a lack of economic growth. Moreover, in response to the string of crises that began in 2008, the Eurozone chose the path of austerity, foregrounding financial stability over growth. The parameters introduced by the Maastricht Treaty to ensure the system’s soundness – the 3% deficit threshold and the 60% public debt/GDP ratio – imposed public spending reductions in periods of slowdown, further worsening macroeconomic data.
In periods of crisis, the pro-cyclical nature of community rules led some countries to call for them to be revised to make them more consistent with their interests; in any case, preserving the basic structure and thresholds established by the Maastricht parameters, even though those criteria were in themselves a guarantee of economic sustainability and debt sustainability. Indeed, much more indicative in this sense were the reliability of the political structure and the unified management of the economy. The fiscal rules proposed by the new Pact have been designed to go in that direction, helping non-compliant countries regain credibility. In assessing the new Pact, it is going to be necessary first of all to decide whether the new tax rules are effective, pertinent to and coherent with the system to which they are applied. In addition to that, it will be important to measure their ability to reduce the pro-cyclic nature of the system. From this standpoint, it can already be said that some improvements have been introduced, but application timeframes remain a problem that could delay activation of the correction instrument in erroneous phases of the cycle, with the risk that the mechanism remains pro-cyclic.
For countries like Italy, the new Pact offers an opportunity to reduce the debt and jumpstart growth, on the condition that a plan for strong and politically complex actions is launched that includes pension spending containment, taxation incrementation that does not impact negatively on economic growth and spending reviews. It is also going to be fundamental to make structural reforms in spheres ranging from the public administration to the justice system and from the job market to education.
Finally, investments are key. Indeed, it is essential to realize that, in the economic, social and global political framework, Europe finds itself in a position of strategic dependence with regard to various aspects – technological, military and commercial – vis à vis the U.S. and China. In order to regain competitiveness and have a future, Europe must reflect on its priorities and on which strategic sectors to spend its resources. Rules can make the difference in ensuring that investments produce the expected returns. In this sense, it would be advisable not only to make a clearer distinction between current expenses and investment spending, but also to review the methods for authorizing investments capable of triggering virtuous productive cycles. To be supported in particular, are transnational European projects – initiatives that involve the financing and governance of various countries – with the potential to stimulate or improve the economy of not just one country but of all those involved.
While an accurate assessment of the new rules will not be possible for a few years, one positive element has already emerged from the negotiations: for the first time in the EU’s history, there is a fully shared awareness that the next crisis will have to be dealt with from the outset instead of waiting to see what happens and then running for shelter.