The debate on the method of assessing budgetary deficits was rekindled with an interview that European Commissioner Mario Monti granted to an Italian newspaper. Some commentators (and even some ministers) interpreted his remarks as an invitation not to take investment spending into account when calculating deficits. In reality, text in hand, the Commissioner's position is more moderate. He considers one should take into consideration not only the quantity but also the quality of public spending, by making a clear distinction between investment and operational costs, ruling out all re-negotiation of the Stability Pact but rather interpreting it. In order to allow readers to form their own opinion, an essential part of the interview is reproduced below. Stances taken on the same subject are many and varied. We take a look at that taken by Professor Monti, because of his prestige and the institutional role he holds. (F.R.)
European Commissioner Mario Monti is interviewed for the newspaper "Il Sole - 24 ore" of 7 September, by Adriana Cerretelli.
"I have always been and I remain attached to the 'golden rule' (note: a rule establishing a distinction in public budgets between operating spending and investment spending) because it is the symbol of structural budgetary discipline. It would perhaps have been a good thing to have had this rule from the outset, but the Stability Pact, although born in a less perfect form, has nonetheless fulfilled its role well. We speak today of the application of the Pact with single currency already in place and well and truly alive, whereas, at the time, the priority aim was to convince the German public that the euro, whose coming into being was not yet finally adopted, would have been a currency able to validly replace the mark (…) This is why priority had been given to clarity in the rules, to a comprehensible Pact as opposed to a more intelligent Pact from the point of view of the economy's structural conditions.
The budgetary discipline resulting from the Maastricht criteria and the Stability Pact remains absolutely necessary, as much today as yesterday. It would, however, be desirable to introduce into the rules of this discipline some elements that intelligently reflect the difference between operating and investment spending. It would, on the other hand, be very dangerous to renegotiate the Maastricht criteria and the Pact. Fortunately, in both cases, there are rudiments that mean they can be interpreted in a structurally correct manner. It might perhaps be appropriate to make these explicit and to define their contours and limits (…). There are two rudiments: one in the Maastricht Treaty (Article 104, par.3), and the other in the 1997 Amsterdam Resolution on the Stability Pact, which introduces the aspect of cyclical fluctuations. The distinction between operating and investment spending, despite the difficulties of application, is fundamental as it serves the interests of future generations. The ceiling of the overall public deficit as a percentage of GDP (3%) remains valid, but it is important to give increasing importance to the qualitative distinction of spending. Nonetheless, making the criteria for application of the discipline set out in the Pact formally explicit, it is important, as Solbes often stresses, to bear in mind the position of different countries regarding the overall public deficit (…). A country with a very high overall public debt must be careful to ensure that operational spending is reduced without, however, unduly sacrificing investment spending (…). Placing emphasis on public investment in application of Maastricht and the Pact, the Pact is not weakened but is consolidated in the structurally correct sense (…). It cannot be denied that Europe is suffering from infrastructure deficiency. After having decided not to have our children and grandchildren born with a heavy public debt burden having round their necks, we must cross the following stage: that of bringing them into a world without debt but also with an adequate supply of roads, bridges, telematic networks, etc.
References to investment must not become an excuse to avoid containing operating expenditure (…). The question one should ask is: is it better to have a deficit of 2.5% of GDP entirely due to consumer demand rather than a deficit of 2.7% entirely due to investment?".
Answering questions on the possibility that the golden rule could slow down budgetary balance in some countries, Mr Monti replied: "Unlike the time when the euro had to be created, I cannot today see the mythical significance of certain deadlines".
In our forthcoming comments on the position held by Monti, we shall also take stock of the observations made by Commissioner Solbes on this position. (F.R.)