Discussions on the goals set by the Fiscal Pact are expected to begin next week at a meeting of eurozone finance ministers, with the European Commission and the European Stability Mechanism (ESM) discussing their own views.
As for the budget deficit threshold, no changes are expected, while for the public debt as a percentage of gross domestic product, the allowable threshold is expected to increase from 60% to 100% (considering 60% very difficult to achieve especially in post-coronavirus season). It is also noted that several times in the past the European Commission has accepted deviations from the targets without imposing “penalties”, as in the case of Spain and Italy.
According to the mechanisms of the Fiscal Pact, in case an economy moves outside the limits, the mechanism of excessive deficit is activated and decisions must be made to reduce expenditures.
The proposals that seem to be on the table, in addition to raising the maximum public debt ceiling as a percentage of GDP, are the creation of a new mechanism for examining the economic situation of each country on a case-by-case basis and agreeing on how and when to implement them. the budget results will be returned within the framework.
This agreement will mainly focus on the expenditure side (since the fiscal result is easier to quantify than the increase in revenue affected by many factors), as we have seen in the past, with possible easing of investment expenditures or periods of recession. (give a period of grace as long as negative growth rates are observed).
It is noted that the final decisions are expected within the next year, since we are in the initial stages of discussions, while the elections in France next year have their own significance. Many analysts expect a heated debate between the European North (with the most conservative policy) and the South in order to reach a balanced solution.
Countries with high public debt also include significant economies, such as those of Spain, Italy and possibly France. So, it is a special way that we expect to see the final decisions, since such traditional economies will hardly be subject to strict rules of cost reduction and monitoring by European mechanisms.
The discussions will take into account the effort for banking and fiscal union, a difficult task if the goal is full union, since we are talking about economies with different characteristics, such as the small economy of Cyprus that relies mainly on services in relation to the large industrial German economy.
The growth rate of the economies may have slowed down, but this is expected to continue, at least in the short term, with employment boosting in Cyprus (below 4% of human resources after several years), but also abroad (in the US applications for unemployment benefits are at their lowest point in the last 19 months).
Employment is an important statistic for an economy and should be assessed on an ongoing basis. It is certainly necessary to properly link education with the labor market and to examine the sectors and professions that are expected to be in demand, both in the traditional sectors of the economy and in those that are being developed, such as technology. .
At the same time, the significant increase in inflation raises concerns, something that will be discussed at the meeting of Finance Ministers next week.
Cyprus, as an external economy, is significantly affected by any negative developments, especially in countries economically associated with it. The pandemic crisis is different from the previous ones as it affects the economies as a whole. Important sectors of the economy have been significantly affected, with the big bet remaining on the transformation of the economy.
Cyprus, through the current circumstances, has the opportunity to reorganize and create a more flexible economy, significantly differentiated. The funds available to the Cypriot government, through European funds, give it this opportunity.
