French President Emmanuel Macron and Italian Prime Minister (PM) Mario Draghi have called for reforms to the European Union’s (EU) fiscal policy to attract greater investment and allow countries to spend more on key assets.
#BREAKING France's Macron, Italy's Draghi call for reform of EU budget rules pic.twitter.com/ZwtmbcQyUu
— AFP News Agency (@AFP) December 23, 2021
In a joint op-ed published on the website of the Élysée Palace on Thursday, Macron and Draghi praised the EU’s bold response to the economic impact of the COVID-19 pandemic and confirmed the benefits of policy coordination across countries and institutions. The leaders also celebrated the €1.8 trillion ($2 trillion) the EU spent to aid families and businesses and the significant measures announced by the European Central Bank and the European Commission to support the members through the ongoing crisis.
The Italian and French leaders further said that while economic recovery is on the horizon, the economy still hasn’t reached pre-pandemic levels. “Public finances are also on the mend: the ratios between sovereign debt and gross domestic product across the EU have stabilised and are set to fall in 2022,” the leaders noted.
Aside from these immediate concerns, the pair urged the bloc to address long-term challenges, including the climate and biodiversity crises and geopolitical and military tensions. They also said that while technology provides several benefits, its increased use simultaneously exacerbates existing inequalities by stratifying social classes and making upward social mobility more challenging.
FRANCE’S PRES. MACRON AND ITALY'S PM DRAGHI: THE EUROZONE'S FISCAL POLICIES MUST ENCOURAGE DEBT-FINANCED INVESTMENT.
— Breaking.Live (@FinancialJuice) December 23, 2021
Amid such global challenges, Macron and Draghi said the EU must “act boldly and quickly” and pointed out that France and Italy are already pursuing ambitious reforms to protect and empower citizens. Moreover, they said the bloc must promote the reform agenda by increasing investment in research, infrastructure, digitisation and defence. They also emphasised the need for an EU Growth Strategy for the next decade and urged leaders to be prepared to implement the strategy through joint investment, rules, and better coordination.
They also acknowledged the European Commission’s decision to suspend existing fiscal rules and launch the Next Generation EU programme to fund greater investment and reforms. To this end, the leaders urged EU member states to define standard principles and macroeconomic goals to formulate a joint, comprehensive, and cohesive new fiscal policy.
Macron and Draghi further argued that the bloc’s previous policy was complex, overburdened monetary policy, failed to prioritise key public spending for the future, and restricted governments’ actions during crises. Keeping this in mind, they pushed for a framework that is capable of contributing to the collective ambition of a more robust, fairer, and more sustainable Europe. They also underscored the need to reduce debt and said this could not be done via higher taxes, unsustainable cuts in social spending, or unviable fiscal adjustment. Instead, they suggested a strategy to curb recurrent public spending via structural reforms.
However, they added the caveat that a certain level of debt is necessary in order to finance crucial investment, writing: “Debt raised to finance such investments, which undeniably benefit the welfare of future generations and long-term growth, should be favoured by the fiscal rules, given that public spending of this sort actually contributes to debt sustainability over the long run.”
Meanwhile, Macron has committed to developing a comprehensive, shared strategy for the bloc’s future during the upcoming French presidency of the Council of the EU. Earlier this month, Macron said he aims to reform the Maastricht criteria during France’s presidency, which begins next month. He added that the rule, which states that the country’s public deficit should not exceed 3% of its GDP, is outdated. However, Germany is less keen on reforming the rules, with its new Chancellor Olaf Scholz claiming that the current regulations are flexible. A group of countries led by Austria are also pushing back against the reforms Macron and Draghi have proposed.