Found agreement. Flexibility with regard to defence and green investments; until 2027, concentrate on how high interest rates affect the cost of debt. Giorgetti: “Italy has made great progress.”
Brussels – Digital and green transitions are secure. The main objectives of the European Union’s agenda will receive the attention and time allotted to member states. The trajectory for deficit and debt reduction also becomes more certain, binding, and difficult at the same time. After today’s unprecedented informal meeting, the ministers of finance and the economy reached a consensus on amending the Stability Pact. The EU commissioner for the economy, Paolo Gentiloni, declared that there was “good news for the European economy.” His worries stemmed from the fact that 2023 was about to expire and that there might not be enough time left to salvage investor and market trust. However, for nations like Italy, whose accounts are more in turmoil than others, this good news might not be so welcome.
One of the safeguards included in the new agreement is that nations with a debt-to-GDP ratio higher than 90% will need to lower it by 1% year, and nations with a deficit/GDP between 60% and 90% will need to lower it by 0.5 percent annually. As a result, Italy will have to cut its debt by the same amount every year as Portugal, Greece, Belgium, France, and Spain. Thus, Scholz’s hard line, who had earlier established this objective, was eventually successful.
Furthermore, Italy will have to cut its deficit like everyone else because the Germans’ second favourite safety net—creating preventive spending margins—passed.
The 60 percent debt/GDP ceiling and the 3 percent deficit/GDP are inalienable elements of the EU Treaties that govern its operations. The agreement mandates that even those that do not beyond the 3 percent maximum must lower it to establish a 1.5 percent gap so they can be prepared in the event of a shock without putting pressure on national accounts. As a result, the criteria remain same, but with one modification. EU member states have the option to start a reduction trajectory with a less rigorous workload that lasts for four or seven years. For nations whose deficit relative to GDP exceeds 3 percent,
Over the course of four years, an adjustment of 0.4 percent per year is needed, which increases to 0.25 percent per year over seven. Italy does, however, receive a transitional clause that takes into account the higher interest costs associated with repaying the public debt as a result of the ECB’s interest rate hikes. According to the agreement, the fiscal rules would be applied flexible until 2027, with the Commission taking into account the additional burden resulting from higher rates without reducing spending margins—which are particularly helpful for the twofold transition.
“There are more positive things than negative ones,” stated Giancarlo Giorgetti, the Italian mister of economy. “Italy has made significant progress,” he said. “First and foremost, we are signing a sustainable agreement for our nation that aims to reduce debt in a realistic and gradual manner and views investments, particularly those made through the NRRP, in a constructive manner.” “We participated in the political agreement for the new Stability and Growth Pact in the spirit of the inevitable compromise in a Europe that requires the consensus of 27 countries,” even though it may not be the greatest possible outcome.
But now that the Commission’s sanctions are going to be actual and not just hypothetical, the improvements will need to be done. The excessive debt procedure is strengthened, increasing its effectiveness as a guarantee of governments’ dependability in implementing changes. Even though they are allowed for, fines have never been applied up until now. The Commission plans to impose the fines more heavily while decreasing their magnitude (from the present 0.1 percent GDP interest-bearing deposit to 0.2 percent GDP fine).
The other side was the source of critics. “If it were a movie, it would be called ‘the perfect suicide for Italy.’ We will have to cut health and education while being able to invest more funds for the purchase of arms and ammunition,” expressed criticism from Tiziana Beghin, the head of the 5 Star Movement delegation in the European Parliament. “We hope that the European Parliament’s negotiators can improve this agreement and expand investment opportunities during the trilogue in January; if not, we will be facing difficult times ahead.”
Trade unions, on the other hand, discussed how the EU and its member states engaged in “self-sabotage.” Many governments would have to reduce their public spending as a result of this deal, as noted by the Confederation of European Trade Unions (ETUC). Ester Lynch, the general secretary, bemoaned, “This agreement is bad news for millions of workers struggling with the cost of living.”
