Most Euro Nations Have Little Chance of Meeting Fiscal Rules
(Bloomberg) -- Euro-area countries will struggle to meet the European Union’s revised fiscal framework, according to research from Bloomberg Economics.
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“It’s hard to overstate how far current government policies are from complying with the EU’s new rules,” BE’s Ana Andrade and Bhargavi Sakthivel wrote in a note published Friday.
After years of spending to stem crises including the pandemic and the fallout from Russia’s invasion of Ukraine, Brussels has reintroduced fiscal limits that aim to be tough enough to spur disciple but not so tough as to be unachievable.
While France and Italy are already among countries facing infringement procedures from the EU for excessive budget deficits, Andrade and Sakthivel highlight that looking at long-term borrowing trajectories is “far more problematic.”
Based on BE’s “own assumptions for growth and market pricing of interest rates, debt is not even close to falling in the medium term with a 70% probability,” they wrote.
In France — where political gridlock makes deficit reduction hard — the odds of debt falling between 2031 and 2036 would be as low as 11%, and the likelihood for Italy and Spain would be just 32% and 39%, respectively.
The research also examines what would happen if France were to implement the plans “rigorously.”
The country “would see debt falling over the next two decades, reaching a level that’s a whopping 42 percentage points lower than our baseline forecast, under a seven-year adjustment plan,” they said.
What actually happens in France is more circumspect, with Prime Minister Michel Barnier yet to announce a new government. Still, he’s already issued a warning over the country’s public finances, saying that the “budgetary situation is very serious.”
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