Will Belgium win or lose from this change in the rules of the Stability and Growth Pact?
We can first consider what the reality of sanctions that Europe imposes on a state that does not respect its budgetary objectives would be. “You’d think it would be without consequences, just as past passing is without consequences.“, warns Etienne de Callataÿ, the economist of Orcadia. But it is better to be cautious with this logic, because Etienne de Callataÿ believes, “For Belgium, there is a real danger“, the risk of losing European subsidies.”The European pipeline pays more money today than it did back then. So the threat of European subsidies being cut is stronger today than ever“, according to Etienne de Callataÿ.
In this reform proposed by the Commission, we can see the regularization of an operational system that is already in place, as we see it in Belgium, with the pension reforms, where European finances are balanced today. “If we continue to have public finances that are far from what Europe wants, we may be punished if we deem desirable.“Arcadia Economist Explains.
The European Commission’s proposal includes, for each state, a type of risk analysis based on credit sustainability. There, Belgium didn’t really score points. “Belgium, in terms of risk analysis, is not well positioned due to the size of the current deficit, the size of the current debt and the size of the implicit debt in old age.“, explains Michael Saintrain, public finance expert at the Federal Planning Office.”These three elements position us among the states of the Eurozone facing the most significant stability risks.“, he adds.
For an expert from the Planning Bureau, the new rules proposed by the Commission will not change much for Belgium in the first years of implementation. “In the first year of its launch, the new framework will not be less demanding in terms of adjustment for Belgium than the old framework.“, he explains. In short, efforts must be made, which is in line with the recent recommendations of the High Council of Finance. The latter suggested to the country’s authorities that the general deficit of all Belgian public administrations be below 3% by 2026. .
“SI am We manage to achieve this, a significant part of the way has already been done“, emphasizes Michael Saintrain of the Federal Planning Bureau. This will make it possible for Europe to approach the goals that Belgium can set in the first four years of implementation of the new rules of the Stability Pact. Once these goals are reached, Europe will no longer demand a return to balanced budgets, unlike the rules of the current framework.”This is an important distinction because we have the margin to finance investments by borrowing“, explains Michel Saintrain.
This can also be considered in favor of Belgium. With these new rules, Europe will be willing to accept a member state going into debt for quality investments. “The improvement is that apart from quantity, we also have quality“, Etienne de Callataÿ welcomes.”We realize that we should not focus on the number 3% or 60%, but also take the route into account“, he continues.”A country that spends a lot on changing the environment may, as a result, have a good policy that exceeds 3%.“, adds the Orcadia economist. So this opens the door to additional facilities for energy conversion, for example.
It’s necessary to have more money to invest… and because of Belgium’s financial situation, it doesn’t have as many means as it would like. “Finding investment margins is difficult in an environment where budget adjustments must be made to return to a path that at least stabilizes and at best reduces debt.“, notes Michael Saintrine at the Federal Planning Bureau.
“Some countries have large budget deficits because they invest a lot“Says Ivan van de Klute, Chief Economist of the Itinera think tank.”But Belgium has a big deficit, not because it’s investing a lot“, he continues. What costs Belgian funds is government activity, public expenditure.”Europe also targets the rate of change in public spending and there Belgium is weak. Its public expenditure has always had a larger increase than economic growth“, adds Evan van de Klute.
To control the budget deficit, keep its public debt under control and earn the credit of the European Commission, Belgium needs to demonstrate greater budgetary discipline and use its money better. “The solution to all our problems is not more money. In some situations, the solution is less money, which means reengineering the system“, believes Etienne de Callataÿ. And to give the example of the Belgian tax system, complicated to implement.”We have as many tax authorities in Belgium as in the Netherlands, although it is 60% more populous. But tax evasion does not seem to be lower here than in the Netherlands“, Etienne de Callataÿ advances.
However, some believe that the new formula envisioned by the Commission based on the Stability and Growth Pact could free up the margins for further discussions with Europe and take more account of the country’s situation. “The European Commission will have more discretion to enter into negotiations with a country“, notes Ivan Van de Cloot, chief economist at think tank Itinera.If a country wants more time for adjustments, the Commission can accept them on the condition that reforms are made, for example on pensions.“, continues Ivan van de Klute.
Whatever happens, a new Stability and Growth Pact or not, consolidation of Belgian public finances will be necessary.
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