Brussels seeks regulatory changes with the aim of curbing public debt without lowering investment

The European Commission reopened the debate on the economic governance of the European Union last Tuesday. Although governments, experts and social actors must first be consulted, the intention is to find a way to reduce public debt. In addition, they do not want to stop investment, vital for economic recovery and ecological and digital transformations.

The economic crisis caused by the pandemic has exacerbated inequality, poverty or differences between some countries, among other things. In addition, public debt levels have skyrocketed, with fiscal rules suspended since March 2020 for governments to keep economies afloat during the health crisis. For this reason, Brussels foresees that it is time to return to the adjustment path and is looking for how to do it, without blowing up growth.

As explained by the Commissioner for the Economy, Paolo Gentiloni, “one of the legacies of the previous financial crisis was that, gradually, during those years, public investment in the Eurozone fell to close to zero in net terms. Investment took the brunt of the cuts and fiscal policies were often far from growth friendly. ” After this, Europe does not want to make the same mistakes. According to estimates by the European Union, the green and digital transitions are expected to demand an investment of around 650 billion a year. Some of this money will have to come from the private sector, but Gentiloni has stressed that the key role belongs to national governments.

The health crisis has caused the indebtedness of the countries to levels never seen before. The European average is around 100% of GDP. Before the pandemic, countries like Spain, Italy or Greece already had complications to reduce public debt.

The European Union launched a public consultation on Tuesday with which it hopes to reopen this debate. It will be necessary to decide whether to reform the pact in depth, which implies redefining the rules, indicators and objectives, or whether it is enough to introduce small changes that provide more flexibility and give governments a little more leeway. Faced with this issue, the countries are divided.

B Law & Tax International Tax & Legal Advisors.


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