By Silvia Marchetti
ROME (MaceNews) – Italy and France are pushing for issuance of a ‘common European public debt’ to fund long-term pro-growth investments with the additional goal of strengthening the single currency and boosting European integration, Italian official sources say.
Sources say Europe faces a turning point with the departure of former Chancellor Angela Merkel, amid uncertainty over Germany’s new European fiscal course. The new era may accord more leadership opportunities to other founding members of the Eurozone, and a new more unified fiscal policy. French President Emmanuel Macron and Italian Prime Minister Mario Draghi are backing the push.
“Paris and Rome have boosted bilateral ties paving way to a new axis which shifts Europe’s power balance at a critical moment for Germany, facing the transition to a post-Merkel era and all the uncertainties this entails with regard to Berlin’s approach towards more lenient European fiscal rules,” said a ruling coalition official.
Separately, France and Italy are jointly advocating for an overhaul of Europe’s tight budget rules, particularly for a revision of how public debt is weighed both at national and EU level.
According to officials, it is paramount that in the wake of the COVID-19 pandemic, and given the long-lasting economic effects it is bound to have, the EU institutions move toward creation of a ‘joint, shared public debt’ that aggregates new EU-wide public debt incurred to support growth.
This approach has so far been opposed by Germany and even though new Chancellor Olaf Scholz has appeared to be more open to more lenient EU fiscal policies, it is yet unclear how much Berlin is ready to embrace budget flexibility or new EU debt.
“A crucial distinction must be made: we are not asking countries to share the burden of past debts that have piled up across decades often due to unwise budget policies, but to share the cost only of that percentage of public debt which has been, and will continue to be, the result of pro-accommodative pandemic measures,” explained another official.
“Countries would no longer need to raise deficit spending as much as they have done in these past two years,” the official said, as the debt to fund pro-growth investment would be incurred at the EU level.
The ‘common public debt’ scheme would only cover expenditures for strategic investments and measures with major long-run pro-growth impact — able to trigger a multiplier effect on GDP, and to support digital and green transition. It would not cover any past expenditures made by national member states.
Officials noted that the recent issuance of eurobonds to tackle the pandemic and fund pro-growth projects, with the European Commission raising funds on the market, was “just the first step” toward a greater fiscal union which necessarily required having a single European budget.
The move towards a common debt for key investments would reinforce the euro, sources argued, particularly vis-à-vis the US dollar.
“The euro has saved Europe, and yet it could be even stronger. We need to boost the single currency’s global role and appeal,” said an official.
“There’s a clear reason why the US Treasury debt is the most traded financial asset worldwide, while Europe is made up of member states’ different national debts which are not totally risk-free nor backed by a EU-wide anti-cyclical budget aimed at stabilizing the economy,” the official said.