Interview, Podcast
Europe at a Crossroads
- European fiscal policy is shifting toward an expansionary mindset cemented by the inclusion of the Green Party in the German government, with EU-wide fiscal rules expected to resume their binding nature in 2023 potentially triggering a return to austerity.
- While formal treaty changes are unlikely, increased informal flexibility is anticipated to shield public investment, and the temporary EU Recovery Fund is scheduled for wind-down between 2027 and 2058, though loan facilities may persist.
- Future fiscal frameworks are projected to evolve from pure constraints to a hybrid model combining grants or loans with structural reform commitments, driven by the argument that current debt and deficit limits are unsustainable given declining interest rates.
- The trajectory of the fiscal union relies heavily on Mario Draghi remaining Italy's prime minister; his potential departure, possibly next year, could destabilize the political landscape and open the door for populist parties.
- There is a risk that Italian parties will prioritize short-term political gains and consumption over productive investment regarding EU funds, influenced by voter expectations for immediate benefits before the next election.
- Further EU integration is expected to remain slow and incomplete due to unanimity requirements for major decisions, though integration itself is viewed as an irreversible process.
- A policy shift toward a closed front among France, Italy, Spain, and Greece regarding the southern border is anticipated as a shared concern, even as populist parties are expected to continue losing ground in recent elections.
- Economic scenarios involving inflation or stagflation remain entirely possible following the pandemic crisis, creating conditions that could allow populists to regain power if they are not currently in office.
- Significant political risks are identified for France and Italy, where populists like Salvini are expected to regain influence if Draghi does not remain in power, with potential unpredictability in the French election if a terrorist attack occurs immediately prior to the second round.