Chief economists of the Savings Bank Finance Group argue for Stability and Growth Pact reform

The chief economists of the Savings Banks Finance Group favour fundamental reform of the Stability and Growth Pact adopted in 1992. They see a particular need with regard to the Maastricht criterion for the debt ceiling.

“Stable economic growth in Europe only works if public finances are sound. In the nearly thirty years since the adoption of the Stability and Growth Pact, the underlying conditions have changed fundamentally. The transformation towards more sustainability calls for massive investments; due to the low-interest-rate environment, governments can carry higher debt burdens today”, said Dr Reinhold Rickes, Chief Economist of the German Savings Banks Association (DSGV).

For this reason, the chief economists of the Savings Banks Finance Group believe that it would be reasonable to raise the debt ceiling to 80 percent of the gross domestic product (GDP). However, they are sceptical about proposals that seek to go further, e.g. by raising the ceiling to 100 percent or abolishing it altogether.

“Europe must not become a debt union. Over the years, constant new additions have made the 60-percent mark for debt more and more complex – ultimately rendering it almost arbitrary. That is why Europe needs new, clear rules on debt, which should be reviewed and re-adjusted regularly – about every five to ten years. Europe needs flexibility to retain its capacity to act, and it needs clear rules to earn trust”, commented Jochen Intelmann, Chief Economist of Hamburger Sparkasse.

The chief economists of the Savings Banks Finance Group expect a change of course from Europe’s governments. Instead of pursuing an expansionary fiscal policy with extensive measures to support consumption, they should now adopt an economic policy geared to the supply side. Europe needs structural reforms to strengthen its competitiveness. In the medium term, the growth thereby generated will help to remove the debt that has accumulated in Germany and Europe.