Berlin, thanks to its budgetary margins, favors investment, while Rome and Madrid rely on European support to revive their economy, while their public debt is reaching peaks.
While the French government presented this Monday in the Council of Ministers the 2021 finance bill, an overview of the budgetary options chosen by three of our European neighbors.
Berlin favors investments over balanced budgets
Angela Merkel’s coalition adopted a dark red 2021 budget proposal last Wednesday. Like this year when Germany had to borrow 217.8 billion euros to save what could be saved from its economy hit hard by the coronavirus pandemic, ” we are obliged to ask the Bundestag to authorize us to borrow an unusually large sum ”, said Finance Minister Olaf Scholz. Berlin will thus contract 96.2 billion euros in debt next year, an amount much higher than the 0.35% of GDP allowed by the debt brake mechanism enshrined in the Constitution.
The German economy picked up stronger than expected this summer. The government has revised downward to 5.8% the fall in GDP in 2020. But the recovery also promises to be slower than expected: Berlin anticipates growth of 4.4% next year, insufficient to regain the level. tax revenue for 2019. The gap will remain at 37 billion in 2021 even as the government plans to spend 56.7 billion euros more to continue to protect the economy from the effects of the coronavirus while strengthening it for the to come up. Berlin wants to invest 17 billion more than in 2019 to green and digitize its economy, which will bring its investments to 55 billion euros in 2021. “Doing nothing would cost much more”, Olaf Scholz warned. Germany also has room: its debt ratio will be limited to 75% of its GDP in 2021, even if it will jump by more than 15 points compared to last year.
Spain: a budget without date or figures
No date, no figures yet for the 2021 budget. Pedro Sánchez’s government is sailing by sight, without knowing yet when and how it will be able to pass to Parliament the expenditure ceiling which will condition the budget available for the year and the country’s ability to use the first tranche of the 140 billion expected from Brussels between loans and funds.
In the absence of an agreement in Parliament, Madrid should therefore not be in a position to present much more than a list of intentions in Brussels on October 15. But we already know that the new macroeconomic framework will be complicated. Analysts expect the economy to recover slowly. The country’s GDP plunged 17.8% in the second quarter and the decline is expected to be 13% in 2020. A GDP rebound of 7.9% is expected in 2021, according to the forecasting institute Funcas which anticipates a deficit by 12% this year and a rise in unemployment to 17%, while the public debt will rise above 120% at the end of 2020.
Spain: the fight against Covid caught in the labyrinth of regions
Finance Minister Maria Jesus Montero assures that the agreements are close and that “80% of the budget has already been drawn up and negotiated”. According to her, the text could pass to the final vote of Parliament next January. It remains to be seen with which alliances. Pedro Sánchez is insisting on a rapprochement with the Liberals of Ciudadanos, without offending his allies in Podemos, nor pointing his Basque nationalist friends of the PNV…
Italian debt at 160% of GDP
For the first time in nearly two decades, the preparation of the Italian budget will not give rise to a standoff between Rome and Brussels for compliance with the Stability Pact. His suspension will allow Italy to face a recession estimated at around 10% this year. It will also be able, without incurring the threat of sanctions, to bring its 2020 deficit forecast to around 12.8% of GDP against 11.9% mentioned last month and its debt forecast to nearly 160% of GDP! The announcement will be made this week during the presentation of the update of the “Economic and Financial Document” (DEF) which serves as a framework for the preparation of the budget for 2021. The Minister of the Economy Roberto Gualtieri is expected to forecast a deficit of 7% of GDP against 5.7% expected in April and a debt of around 156% of GDP.
Italy raises economic response to crisis to 100 billion euros
An even more marked deterioration in public finances, already extremely fragile before the pandemic and on which weigh 100 billion euros in additional loans this year to limit the impact of the coronavirus on the economy. The government is counting on a rebound in growth in 2021 of 6% thanks in particular to European aid granted by the recovery plan. Rome, which will be the main beneficiary, is expected to receive some 209 billion euros in loans and aid by 2023. Italy is expected to present a list of priority projects to Brussels in mid-October. Time is running out, otherwise support for the economy will come too late.
OUR SELECTION OF ARTICLES ON THE 2021 BUDGET:
Bruno Le Maire defends a 2021 budget “which responds to emergencies and prepares for the future”
Budget: the executive defends an economic strategy weakened by the resumption of the epidemic
2009 and 2020, two very different stimulus plans
Five questions on the 2021 finance bill
Xavier Timbeau (OFCE): “It’s a recovery plan without stimulus”
Bercy posts a tax cut of 45 billion over four years
Act 2 of the lowering of the housing tax initiated
Stimulus plan: what you need to know