Report
Patrick Artus

Other fiscal rules in Europe after the COVID crisis?

The fiscal rules present in Europe are well known: the public debt ratio must return (in 20 years) to around 60% of GDP; the total fiscal deficit must be less than 3% of GDP, the structural fiscal deficit at 0.5% of GDP (1% for countries with public debt ratios below 60% of GDP). In what ways is the COVID crisis likely to lead to a change in these rules? It would have to be possible to distinguish between current public spending and public investment spending, by defining as public investment what really has a positive effect on potential growth; public investment defined in this way can be financed by debt; A distinction would have to be made between public debt held by the ECB and that not held by the ECB; only the latter has an effect on countries' fiscal solvency; A distinction would then also have to be made between cyclical fiscal deficits, which can safely be monetised by the ECB, and structural fiscal deficits, which should not be monetised since the issue of monetising public debt becomes central to the analysis of fiscal solvency; Lastly, the target for the total fiscal deficit would have to be set not in a fixed manner, but in relation to the equilibrium between savings and investment in the euro zone, with a higher permitted fiscal deficit if there is a savings surplus.
Provider
Natixis
Natixis

Based across the world’s leading financial centers, Natixis CIB Research offers an integrated view of the markets. The team provides support to inform Natixis clients’ investment and hedging decisions across all asset classes.

 

Analysts
Patrick Artus

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