EU: fiscal rules no longer exist

We Spaniards are helpless. We need new limits on the deficit and the debt, because their bad consequences will be paid for by us again.

Felipe González ended with a fiscal deficit, in 1995, of 6.8% of GDP. To enter the euro, Aznar set out to meet the Maastricht criteria (something that many considered impossible). Among them, a fiscal deficit of less than 3%, which has been achieved since 1998.

Zapatero received Spain with a fiscal deficit of 0.4%. In six years he multiplied it by more than 40, until placing it above 120,000 million euros in 2009 (11.3% of GDP). Accounting, there was a surplus between 2005 and 2007: an unsustainable surplus arising from the collection provided by the housing and credit bubble. There was no containment in spending: between 2003 and 2009, public employment increased by 13% (more than double that of private employment), official bidding grew by 50% and spending on social benefits (excluding pensions and unemployment) increased by 81% (the "new rights" bubble).

The limits that were originally agreed upon in Maastricht were insufficient to contain Zapatero's irresponsibility. For this reason, in addition to pressure from Merkel and Obama ("my advisers tell me that you are not taking action and that harms us all," the American told ZP), in March 2011 the "Stability Treaty, Coordination and Governance". There, the commitment was assumed not to exceed a structural deficit of 0.5% and to reduce the deficit and the public debt to the limits already agreed upon. From that pressure and that Treaty arose the accelerated reform of article 135 of the Constitution, which Rajoy translated into the Budgetary Stability Law.

Under the supervision of the European Commission, between 2012 and 2018 the fiscal deficit was cut every year and AIReF was created. Even so, public debt grew to 100% of GDP in 2014 (almost 30% of the increase in debt in those years was to pay two other legacies left by ZP: unpaid bills to suppliers and the rescue of savings banks ).

The first thing that Pedro Sánchez did when he came to the Government was to negotiate with the European Commission an increase in the fiscal deficit limit for 2019: from 1.3%, the ceiling went to 2% of GDP. The deficit ended up being 2.9%. The pandemic found Spain with a debt of 95% of GDP and a government not only unconcerned about AIReF and the limits of Maastricht and the 2011 agreement, but even violating its agreements with Brussels.

The European Commission suspended the validity of the fiscal rules for 2020 and 2021. Then, it extended the pause to 2022. A few days ago, with the excuse of the war in Ukraine, it extended the suspension of the fiscal rules for another year. This is a blow to the credibility of the EU (if you have "rules" that you don't follow for four years, you really don't have any rules) and a reinforcement of its wrong Keynesian ideas (how inflation will force interest rates to rise , let's leave room for public spending to stimulate demand). These ideas justify the manipulation of interest rates and the permanent increase in public spending to achieve "full employment". What they achieve, in reality, is multiple damage: recurring crises, misallocation of resources, lower productivity, etc.

It is false that the pandemic has "forced" the deficit to shoot up: Sweden, Denmark and Luxembourg did not fail to comply, in 2020 and 2021, with the agreed limits. Another nine countries (such as the Netherlands, Finland and Portugal), had fiscal balance in 2019, triggered the deficit in 2020 and reduced it to less than 3% in 2021. Instead of bridging them, the European Commission makes things easier for the gastizo governments, Like Sanchez's.

We Spaniards are helpless. We need new limits on the deficit and the debt, because their bad consequences will be paid for by us again. I propose some: a constitutional limit on total public spending (30% of GDP? 35%?), with a penalty of lifetime disqualification for the president and ministers who violate it. Prohibition of public salaries growing more than those of the private sector. Limit the increase in the number of public employees to demographic growth. As soon as the fiscal deficit exceeds a certain level, automatic suspension of bids and other expenses.

Diego Barceló Larran, Director of Barceló