New commitments established by the Stability and Growth Pact

Translated by Giulia Maffeis

Like every September, following the August break, one of the most intense and complex phases of national and European politics begins - the process leading to the definition of state budgets and the management of public finances through what is usually referred to as the budget law.

However, for the current year, national governments will have to face numerous changes caused by the entry into force of the new Stability and Growth Pact, adopted in recent months after a complex negotiation at the European level. This effort has substantially changed almost all the rules currently in place for member states, starting with the spending trajectories to follow and the specific commitments undertaken to address critical situations. [1]

The new Structural Budget Plans (SBPs), drafted at the national level, will have the peculiarity of having a longer validity than in the past (formerly focused on the current year with a three-year projection), operating over an average period of 4-5 years (essentially the length of a legislative term). However, for countries suffering from high public debt, this could extend up to seven years, with particular limits and commitments.

These multi-year plans, it’s important to note, involve a strong rigidity concerning the strategically planned path, which cannot be altered except in exceptional cases, such as a change of government.

This significant overhaul of the national and European process has also led to a new calendar of institutional commitments. The first significant date is September 20, the day when the SBPs are expected to be formally submitted to the European Commission.

However, this deadline will likely be postponed in many cases, as already announced by the Italian and French governments, which have requested more time, given the complexity of the new framework and the financial challenges of their respective countries, both engaged in seven-year debt reduction programs. [2]

This request for more time is also caused by the institutions' intent to treat the current year as a transition period, allowing structures to adjust to the new model, though it should not be underestimated, as many economists have pointed out.

Among the new features introduced, which complement the historical parameters related to deficit and public debt containment, is the negotiation of an "adjustment path", specifically strict for countries like Italy, which are chronically burdened by high debt. Moreover, a new parameter has been introduced: "net primary spending", which refers to net public spending, excluding certain variables such as interest on public debt, unemployment-related measures, and other extraordinary measures.[3]

All these factors demonstrate the sensitivity of the decisions that national governments, in coordination with the Commission, will have to make in the coming days, decisions that will shape the course of economic policy for the years ahead.

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