“It seems very tempting to absolve EU Member States of their responsibility for the Covid-related debt by reforming the Stability Pact and not insist on a rapid reduction of high debt levels after the pandemic. It is also true that government debt that exceeds the previously permitted ceiling of 60 per cent of GDP may well be sustainable if interest rates are low. Nevertheless, calls for a far-reaching relaxation of European debt rules fail to recognise three facts: First, most EU countries face not only high debt levels but also even higher hidden liabilities arising from the unfunded pension and health benefit entitlements of the rapidly ageing population. Secondly, the growth rate of particularly highly indebted EU countries like Italy has been very low for a long time, which could result in unsustainable debt despite low interest rates. Thirdly, the ability to finance the large financial needs of several euro countries has come to depend heavily on the willingness of the ECB to continue its zero interest rate policy and to buy up government bonds on a massive scale.
Against this background, effective European debt ceilings are essential if only to protect the ECB’s monetary independence. Nevertheless, it is legitimate to discuss a reform of the Stability Pact. The existing regulations are far too complex and there is no impartial guardian of the rules. Even before the pandemic, the European Commission only half-heartedly enforced the pact and, in its interpretation, was more concerned with election campaigns in the Member States than with financial risks. In this context, it should be considered which independent institution would be better able to interpret the debt rules responsibly in the future based on the economic situation. If supervision were more independent, it would also be possible to simplify the rules.”