Europe faced its biggest economic collapse since World War II last year while being forced to pull out its entire fiscal arsenal to combat the health crisis. This double dynamic truncated the path that the euro zone was following to reduce its public debt, which was going to go from 84% of GDP in 2019 to 76% in 2024, according to the International Monetary Fund (IMF). The director of Fiscal Affairs of the institution, Vítor Gaspar (Manteigas, 60 years old), maintains that the forecasts now go through that this year it will be at 100% of GDP.
After the scars of the financial crisis, come those of the pandemic. “Spain reacted to the health crisis with a very strong fiscal policy, very much in line with what can be seen in Europe,” says Gaspar by videoconference. The impact of the crisis on the Spanish economy, however, was greater: “It has to do with some structural characteristics of the Spanish economy, specifically, the importance of the tourism sector.”
The IMF notes that spending remains higher, although it is landing slowly. At the same time, revenues have already been projected to be “slightly higher” than before the outbreak of COVID-19. The institution directed by Kristalina Georgieva, in line with the forecasts of the Pedro Sánchez Government, foresees that Spain’s public deficit will fall from 11% to 8.6% this year and to 5% next year. Instead, he predicts that until 2026 it will remain above 4% of GDP. Debt, on the other hand, will grow this year to 120.2% of GDP to fall to 116.4% in 2022.
The IMF’s message is clear: countries must spend to combat the health crisis and mitigate its consequences, but they must also think about the day after. “At Fiscal Monitor We show that countries that benefit from a credible fiscal framework in the medium term are capable of accessing financial markets in better conditions, both in terms of cost and ability to obtain additional funds if necessary ”, he points out in conversation with EL PAÍS .
The multilateral organization, on the other hand, is not so clear on when the withdrawal of the economic stimuli that they have launched into the economy should begin. The European Union has given its partners one more year before returning to fiscal rules. Gaspar says that the IMF follows “very closely” the calendar that is coming in Europe: it will have to decide when to put the rules back in place, how to make the transition and how to reform them.
The body has its own opinion on the direction in which the reform should go. “Sustainability” and “stabilization” are two elements. Aware of the rules derived from the Stability and Growth Pact due to his past as Portugal’s Minister of Finance, Gaspar adds a third element: “Simplicity”. “It is necessary for its public communication and for its effectiveness in the political context.”
The Portuguese economist defends the sacrosanct ceiling of 3% of GDP that European fiscal rules set as a ceiling for the deficit of the member states. “The 3% limit on fiscal deficits is a rule in Europe that has provided a focal point for the conduct of budget policies in many countries. So that is one of the aspects that should be valued and preserved ”. The debt rule is more complex: several countries, including Spain, will emerge from this crisis with extremely high levels of liabilities. “Previous editions of Fiscal Monitor They suggest that the 3% operates as a focus that acts as a tractor for fiscal policies in Europe, but we do not have that evidence for the 60% debt ceiling ”, admits the head of the Fund’s fiscal area.
Brussels plans to open the debate this autumn. The proposal, in fact, will arrive in the next few weeks. The Commission decided to leave the thorny discussion for when the economy began to rebound and, according to the IMF’s own numbers, that is already happening. In the medium term, says Gaspar, the euro area will even recover the growth path it had before the depression. And, for this, one of the key recipes is the vaccine: “There, Spain is one of the countries star, together with its neighbor Portugal ”, he concludes.