Will European public opinion understand that fiscal austerity is coming back?
Since the start of the COVID crisis in 2020, there has no longer been any limit to fiscal deficits in Europe, thanks to the suspension of Europe’s fiscal rules and the ECB’s action. But the situation is now changing: for most countries, it is unthinkable to no longer have fiscal rules again in the euro zone; also, the ECB will stop buying government bonds and will hike its interest rates, more than financial markets expect, to combat inflation. Euro-zone governments will therefore have to reduce their fiscal deficits. But public opinion, which has become accustomed to limitless fiscal deficits, will not understand this and will react very negatively to a return to a modicum of fiscal discipline. Besides, why does the euro zone not do like Japan (highly expansionary fiscal policy, near-zero long-term interest rates)?