In view of the ongoing Corona crisis and impending digital and ecological transitions, the same question is being raised both in the Member States and political circles in Brussels: how can the Member States combine investment boosts and debt brakes in a sustainable and crisis-proof manner? For Europe’s trade unions, too, this is a question that doesn’t yet appear to have found an answer.

According to the rules of the Stability and Growth Pact (SGP), Member States may not take on more than 3% of Gross Domestic Product (GDP) in debt each year and the public debt ratio must not exceed 60% of GDP. Are these rules too rigid to allow governments to adjust national fiscal policies in line with economic cycles and crisis responses? Or do we in fact need these rules to keep debt in check without any ifs and buts?

Reflecting back over recent years, we see that many countries have not been meeting the Stability and Growth Pact’s targets for a long time now, and not only “in the South”, but also in countries such as Belgium and Austria. Germany first violated the SGP 15 years ago under Chancellor Schröder and is currently exceeding the 60% government debt ratio. These developments were triggered primarily because of a series of derogation and flexibility mechanisms that granted Member States temporary deviations from SGP rules.

Although these mechanisms always require the approval of national governments in the EU Council of Ministers, they are mostly based on political rather than economic considerations. This is how some individual countries have been repeatedly given a “reprieve” in the past; since March 2020 and probably lasting until 2023, the Pact has even been completely suspended through what is known as the “escape” clause, allowing governments to tackle the Corona pandemic with massive and urgently-needed expenditure whilst at the same time looking towards the digital-ecological economic transitions that lie ahead.

Brussels is now considering putting the EU’s economic and fiscal governance on a new footing for the post-2023 period so as to introduce a reformed system that better combines flexibility, investment stimulus and sustainable debt reduction; even across economic cycles, crises and asymmetric (i.e. country-specific) shocks. Europe’s aim here is to find an effective and universally-accepted solution; with all the reform-readiness in the world, highly indebted Member States need urgent to medium-term substantial assistance from the financially better-off countries for investments – to be used to a considerable extent for modernising their public services and administrations. And these financially better-off countries, for their part, cannot really afford to dismiss offering assistance out of hand if they wish to avoid further social and economic division in the EU at all costs.

The EU internal market is too economically and financially integrated, and “rich” countries such as Germany are the ones deriving excessive financial benefit from it. And last but not least: Isn’t the EU’s very raison d’être to pursue the objectives of convergence and solidarity, which the “richer” Member States are only too ready to call for in other political contexts?

Of course, in principle, it is only possible to distribute what has been generated beforehand, and every country should be able to stand on its own two feet in the long term; the German Finance Minister Christian Lindner recently emphasised this point at the dbb’s annual conference. However, it is equally true that investments sometimes create the framework conditions for prosperity, economic development and, ultimately, tax revenues. In his opening speech , dbb Federal Chairman Ulrich Silberbach emphasised that investments, not least in public services, mean investments in stability, economic activity and prosperity.

Of course, it could be argued that additional investments, i.e. expenditure, come at the expense of future generations, as the German Taxpayers’ Association never misses an opportunity to point out. But it has been repeatedly shown that upstream investment, for example in public services, makes States and society more resilient to future crises; rendering them worthwhile in the medium- and long-term. And surely no one would question the fact that especially in times of Corona and sweeping digital and ecological changes, large-scale expenditure is needed to safeguard the interests of those very future generations.

With all due criticism of the ‘Greek conditions’ 15 years ago: for many, the austerity policies imposed by the Troika have been a resounding failure. It is true that selling off a strategically important port (now in the hands of the Chinese) and mass emigration, especially of young and educated people, is hardly synonymous with glittering prospects of ‘resilience’.

In a recent opinion piece for the Financial Times, Emmanuel Macron and Mario Draghi argued in favour of reforming the Stability Pact to facilitate public spending in the future: “We need to have more room for manoeuvre and enough key spending for the future and to ensure our sovereignty,” wrote the two Heads of State and Government. This view clearly contradicts the ‘breaking even’ dogma, and to write it off as simply wrong (from a German perspective) would be presumptuous. Rather, it is based on differing interests, economic cultures and, not least, historical experience. And it must be said that both are not faring too badly in economic terms at the moment.
And this is Europe.

So, when the German Federal Minister of Finance announced at the dbb annual conference that the debt brake would be introduced again as of 2023 and that it would serve to guide public spending decisions, some fundamental disputes (within the German traffic light coalition too) naturally arose about what form and direction the SGP ought to take. The outcome will also have an impact on the interests of all employees and civil servants working within the public services of the Member States and Europe. As CESI, we must therefore keep a critical eye on the debate, but must also remain broad-minded and careful not to declare any thinking off-limits. Because for us too, the stakes are high.

In this context, see also the decision of the EU finance ministers from January 18 who approved this recommendation: https://data.consilium.europa.eu/doc/document/ST-5080-2022-INIT/en/pdf