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It's a radical change that happens almost without fanfare. In Europe, years of often painful austerity are coming to an end, while governments, from the most debauched to the most conservative, are loosening the purse strings and recognizing the need for a fiscal stimulus.
The easing of European budgets has been visible in the budget plans for some time now, but it is only now, while the European economy was undergoing an unexpected and brutal economic slowdown, that it had become one of the main ways to avoid a serious slowdown. More by accident than by their design, economists believe that the injection could, this time, be well programmed.
Erik Nielsen, head of research at UniCredit Bank, said that this showed that governments were aware of the risks of worsening the continent's economic prospects – and that the European Central Bank was no longer the only option for solve problems, especially in developing countries. the industrial sector in difficulty.
"It is too early to be optimistic about the economic data," he said. "That said, in [Europe’s government] departments, the atmosphere and the will to do something are very different from the years of austerity.
Fiscal stimulus measures by the continent are far from being a huge tax cut for businesses, like Donald Trump's, but they have been reflected in the economic badessments of leading international organizations . The European Commission said last week that it was likely that a slide into the recession would be avoided, partly because of the "expansionary fiscal policy" of member states.
The latest figures from the Commission on structural changes in euro area member budgets as of November do not include many recent money injections. However, even at the end of last year, the three largest economies in the euro area – Germany, France and Italy – all forecast a fiscal stimulus of at least 0.4 % of national income in 2019.
According to IMF figures, this is a significant number, but only about a quarter of the US fiscal stimulus remains between 2017 and 2019.
Economic thinking has evolved considerably since the early years of this decade and is now comfortable with higher levels of debt. This is all the more true as the burden of debt servicing has declined along with the improvement in economic growth.
In a recent report on sovereign debt, the OECD said the balance between interest rates on public debt and the growth of advanced economies had "improved considerably and slowed the growth of the debt ratio. / GDP in recent years ".
Economists are also aware of the underlying need to improve aging infrastructure in many European countries.
Yet, although stimulus measures are being put in place across Europe, we are not yet in a coordinated attempt to combat the economic downturn or improve the capacity of the continent's infrastructure.
In France, anti-government protesters forced President Emmanuel Macron to humiliate the planned increases in the fuel tax. Alongside additional support for the poorest pensioners, this led to an increase in France's budget deficit and exceeded the EU's borrowing limit of 3% of national income.
Italy's stalemate with the Commission over its planned fiscal easing has been temporarily defused, but ministers have no doubt that they need more flexibility to raise the incomes of the poorest and keep electoral promises made by its populist leaders.
And Germany has put in place significant tax incentives for investment, even though the country's finance minister, Olaf Scholz, insisted last week that the country should maintain its "black zero" policy of always clearing surplus.
Some economists urge the Commission to recognize the strength of the wind and to further relax the rules that euro-zone countries must adopt, for example, with rules that specifically allow countries to take advantage of the low cost of borrowing to increase their spending. debt for investment projects.
Christian Odendahl, chief economist in the think-tank of the Center for European Reform, called for a complete rewrite of fiscal rules, which he says amplifies the ups and downs of the eurozone's economy.
"Europe's fiscal rules do not allow for sufficient recovery during a recession and allow excessive spending in boom times," he said. "A redesign of fiscal rules to protect investment spending and impose highly counter-cyclical policies would help counter the current slowdown."
advisable
While the eurozone's overall deficit is expected to reach 0.6% of gross domestic product in 2019, compared to 5% in the US, and as the slowdown intensifies, the pressure for further fiscal stimulus is expected to grow. 39; accentuate.
Although economists are increasingly supportive of such action, they remain concerned about its effectiveness.
Nielsen said efforts to stem an economic slowdown can not be guaranteed. "It is always difficult to set the right timing and make it effective, but I do not see the risks of lowering, for example, 1% of the revival of national income to the poorest," he said.
Still others worry that while the public debt outlook looks more favorable with reasonable growth and low interest rates, these conditions may not last.
George Buckley, chief European economist at Nomura, said: "In reality, only Germany among the four major economies has sufficient fiscal space to strengthen its budget support, if any".
Even then, the stimulus measures in Germany alone are unlikely to be enough to save the entire eurozone economy, said Andrew Kenningham of Capital Economics. "Something much more important would be needed to really boost the economic growth of the whole monetary union," he said.
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