Stability Pact: harmful budget rules
“If you ask me whether the rule adopted today in Europe and in other nations of the world, including Israel, Malaysia and China, according to which a country’s deficit must not exceed 3% of GDP has a scientific basis, I will immediately answer no. Because it was I who conceived it, on the night of June 9, 1981, at the explicit request of President François Mitterrand who was in a hurry to find a simple solution that would quickly put a stop to the spending of the left-wing government which in the meantime was exploding in So less an hour, without the assistance of an economic theory, the idea of 3% was born.” He doesn’t mince his words Guy Beewho at that time (4 April 2019) was an official in the French Budget Ministry and is today 68 years old and happily retired.
Abeille: “This is how the parameter on the 3% GDP deficit was born and why it no longer has value. Europe needs People easing” (Il Sole 24 Ore). If anyone was not aware, here is the “scientific” explanation economic-financial” of 3%. The same applies to the 2% dogma introduced by the European Central Bank. “This objective is clear and symmetrical, meaning that the ECB aims to maintain an inflation rate of 2% in the medium term. In summary, the 2% target was “carefully chosen to balance the interests of the economy and ensure price stability in the medium term.
The 2% inflation target was adopted by the European Central Bank (ECB) in July 2021, as part of the review of its monetary policy strategy. Isn’t that still enough? Here is what is included in the budgets in a spannometric manner: “In the preparation phase of the transition to the ESA 2010, the European Union reached the decision to homogeneously apply the ESA rules which impose the inclusion of illegal activities with specific characteristics; this principle was already present in the 1995 version of the ESA, then reconfirmed in the 2010 version. Consequently, from September 2014 the accounting data provided to the European authorities by each country must include in the accounts the income produced by the marketing of narcotic substances, the practice of prostitution and the smuggling of cigarettes and alcohol. Page 6. Provisional version (Istat.it).
Question: How do you calculate it? Are there any invoices or financial statements that demonstrate this? Fra’ Luca Bartolomeo de Pacioli (1445-1517) inventor of Accounting is turning in his grave! The latest “shootouts” of the EU concern the Stability Pact, i.e.: 3% deficit/GDP objective, public debt under 60%, translated into Italian they become “Numerical Safeguards” with the aim of guaranteeing more effective management of public finances and promote economic stability in the European Union”. Do you understand something? Maybe there’s something wrong, perhaps certain “actions” are said and recommended, perhaps it is not clear how these numbers can be reached. I close with a popular saying: we are doing what is possible, we are trying to do the impossible, we are preparing for miracles.