A few days ago the Italian government objected
to the way that putative technocrats at the European Commission
calculated their country’s “structural deficit”. To all but the few
familiar with the arcane intricacies of the Maastricht Criteria, the Six-Pack and the Two-Pack
the objection might seem esoteric at best.
However, it has the potential to develop into a challenge to the strategy and tactics used by the European Commission to implement its mismanagement of the euro zone.
Nestled safely out of sight deep in the Stability and Growth Pact lies the “structural deficit” and how to measure it. The danger of wading into these waters is indicated by the official definition, “The actual budget balance net of the cyclical component and one-off and other temporary measures.”
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This sentence wins no award for clarity or precision. It is obvious that the definition refers to a conceptual measure that cannot be observed. Second, this structural deficit claims to omit “one-off and other temporary measures”. The government re-capitalizations (“bailouts”) of private banks in the early days of the Global Financial Crisis of 2008 would seem obvious candidates for a “one-off” measure.
The Spanish government moved from an overall fiscal surplus of 2% of GDP in 2007 to minus 11% in 2009, and over half the increase represented funds for bank bailouts. The technocrats in the Commission (or their political bosses) did not judge the Spanish salvation of commercial banks to be either temporary or one-off (discussed in Chapter 9 of my new book). As a result the government in Madrid found itself facing demands from Brussels for severe expenditure reductions (as well as interest rate inflating speculation on public bonds).
Read more: Why The Structural Deficit Does Not Exist
However, it has the potential to develop into a challenge to the strategy and tactics used by the European Commission to implement its mismanagement of the euro zone.
Nestled safely out of sight deep in the Stability and Growth Pact lies the “structural deficit” and how to measure it. The danger of wading into these waters is indicated by the official definition, “The actual budget balance net of the cyclical component and one-off and other temporary measures.”
\
This sentence wins no award for clarity or precision. It is obvious that the definition refers to a conceptual measure that cannot be observed. Second, this structural deficit claims to omit “one-off and other temporary measures”. The government re-capitalizations (“bailouts”) of private banks in the early days of the Global Financial Crisis of 2008 would seem obvious candidates for a “one-off” measure.
The Spanish government moved from an overall fiscal surplus of 2% of GDP in 2007 to minus 11% in 2009, and over half the increase represented funds for bank bailouts. The technocrats in the Commission (or their political bosses) did not judge the Spanish salvation of commercial banks to be either temporary or one-off (discussed in Chapter 9 of my new book). As a result the government in Madrid found itself facing demands from Brussels for severe expenditure reductions (as well as interest rate inflating speculation on public bonds).
Read more: Why The Structural Deficit Does Not Exist
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