Vitor Constancio, former governor of the Bank of Portugal and former vice president of the European Central Bank (ECB), argues that “our financial rules on the ground are not enough.” [para a recuperação económica depois da pandemia]”Our debt standard has no economic meaning,” he added.
Constancio defended in an intervention he made at the Recovery Summit, which took place on Wednesday this week that marks the end of the Portuguese Presidency of the Council of the European Union, at the Centro Cultural de Belém, that “the debt standard we have makes no economic sense” because “the sustainability analysis Debt today is not the same as when the Maastricht Treaty was passed.” He stressed that we are “in a completely different world”, characterized by “low growth and low interest rates above all else.”
The former European Central Bank vice president’s comments contrast with recent comments by German Finance Minister Olaf Schulz, who argued on Monday in an interview with the Financial Times that there was no reason to change these same financial rules. And according to Schultz, they already have “enough resilience to weather crises like the pandemic.”
“In economic terms, we are coming out of the crisis better than expected because we are following an expansionary fiscal strategy,” the German minister justified, and then confirmed that “the current rules are working.”
But for Vitor Constancio, targets such as 60% of debt as a function of GDP are “completely obsolete” and this specific target is based on “irrational” reasons: “it was the average of countries in the eurozone.” He continued that before Covid-19, the same rate was “86%”.
He defended, “By applying this rule from 2023, we will make the same mistake that happened in 2011. I still don’t think that countries like France, Italy or Spain can accept a return to this mechanical formula. This cannot happen”, “The net expenditure path is less procyclical because it does not fix the annual deficit,” he explained.
The former leader of the Socialist Party also concluded that “the debt does not have to be repaid within a year, so what is the logic of this rule?”.
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