While in Italy all attention is focused on the acrobatics of ephemeral political formations whose policies are difficult to grasp, Germany dealt a blow against the fundamental issues of reforming European financial rules. And it is an intervention that strikes a completely discordant note in the debate that had been revived by Draghi and Macron’s article in the Financial Times,  which referred to an Italian-French proposal signed by the two presidents’ economic advisors.

Recently economist Massimo D’Antoni cited a document from the German Ministry of Economic Affairs and Climate Action, led by Vice Chancellor Robert Habeck, co-leader of the Greens together with Annalena Baerbock, entitled ‘Proposal of Principles to Guide the German Government in Decisions on the Reform of European Fiscal Rules’. One would have expected a document on this topic to come from the Ministry of Finance, led by Liberal Christian Lindner: but it must be said that, given its strongly neo-liberal contents, it is difficult to assume that Lindner does not agree with it.

Lindner is a Taliban with his pernicious economic policy that has been imposed on Europe by Germany and its allies up to the pandemic crisis, in respect of which the measures decided upon to deal with it – from the suspension of financial rules to the launch of the Next Generation EU – seemed to have marked a caesura. Some celebrated as the EU “Hamiltonian Moment”, but it has conveniently been forgotten and airbrushed from the EU discourse.

So far, when speaking of European rules, Lindner has only said that there is no need for any substantial reform. Habeck appears to be of the same opinion. His ministry’s document brings to mind Benedetto Croce’s famous phrase after the fall of fascism, ‘heri dicebamus’, as we were saying yesterday, that is, the resumption of a discourse interrupted by an annoying parenthesis that can finally be forgotten in order to start again from where it began, without any discontinuity.

The document is characterised by two aspects. From the point of view of objectives, the central one is the limiting of public debt and its reduction by those countries where it is highest in relation to GDP. From the point of view of method, the reaffirmation of the importance of the structural budget for analysing the development of fiscal variables, with its accompanying estimates of potential GDP and the output gap.

The structural balance is that strange thing invented perhaps with a good intention, i.e. to take into account the temporary influences of the economic situation of public accounts, but which has given ample evidence of the absolute unreliability of these accounts, very frequently producing paradoxical results. But it is on the basis of those results that the technical bodies of the European Union formulate their ‘recommendations’ (de facto dictates) on budgetary policies, and this has caused very serious damage in the past.

 The unreliability of this method has been pointed out by a vast number of prominent international economists, and its abandonment has also been advocated in many of the proposals put forward for the reform of European rules. In Habeck’s paper, however, its use remains absolutely determinant.

Linked to it, for example, is one of the few concessions to less rigidity. The ‘debt rule’ (the one that states that it must be reduced by 5 percent yearly) is considered fulfilled if the structural budget is balanced. A demented rule whose suspension depends on unreliable calculations.

It then seems that the risk of potential instability can only be caused by one factor, namely public debt. Now, no one with common economic sense thinks that it is possible to continually increase debt as if there were no tomorrow, but it should be understood that debt is an important instrument of economic policy. No one has succeeded in demonstrating that there is a level beyond which growth is damaged (one only has to recall Reinhart and Rogoff’s disgraced attempt to do so and the subsequent studies that debunked it.

 And as for sustainability, those who think it can be determined by mathematical-probabilistic methods – as, for example, as proposed in a hypothesis elaborated by former IMF chief economist Olivier Blanchard and others – overlook a much more decisive factor, namely how much and by whom the debt can be guaranteed, which depends on formally technical, but in fact political, decisions. Put more clearly, if there is a central bank umbrella, debt-induced instability remains a remote possibility, as Draghi’s now mythical whatever-it-takes should have taught us. Not to mention that any estimation of debt sustainability should be taken with a grain of salt, as the methodology used determines the outcome.

Other negative aspects of the German document are the fact that no adaptation of the rules to the situation of individual states is envisaged and that more automatism in triggering infringement procedures is desired. As for investments, only a little more room for those related to European reforms and projects is permitted. Finally, it is also proposed that the European Fiscal Board, a technical body of the Commission, be made independent, thus creating another anti-democratic technocratic structure that is not answerable to EU politicians and citizens.

In short, the document marks a clear step backwards compared to the debate on rules that has developed so far. Also worrying is the fact that it comes from the ministry led by the vice-chancellor and co-leader of the Greens, who are currently, according to the polls, the only ones in the government coaltion gaining support. According to a recent poll (of 8 August), the Social Democrats of Chancellor Scholz are have fallen to 18% with almost 8 points less than the election results, overtaken precisely by the Greens who would be at 21.5% (with an almost similar gain) while the conservative CDU-CSU is in the lead with 27%. The Liberals, the third party in the government coalition, are also in sharp decline, at 8% (against 11.4 in the elections) and overtaken by the Afd (extreme right) at 12.5%. If the Greens also espouse the view that the anti-pandemic measures were an exception and we must return to the previous ‘normality’, this is a very worrying political signal. The hope that Europe can really change would fall victim to it.