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The leaden rule

Brussels must allow investment policies in Spain and Italy that do not add to the deficit

The economic architecture of the euro zone is caught in a dangerous loop. The dominant country of the area, Germany, and the countries allied with it in insisting on austerity policies at all cost, are reluctant to promote stimulus plans to help speed up the recovery of countries mired in recession, such as Spain.

The European Commission, pressed by ever-louder protests from the euro-zone countries most affected by the crisis, initially conceived the solution of excluding investments that are specifically aimed at fostering growth from the calculation of the deficit.

But the prevailing orthodoxy, ever vigilant, has succeeded in limiting this exception to those countries whose public deficit does not exceed three percent of GDP.

The Commission, and Germany, thus conceives growth-friendly policies as a prize for those countries that comply with deficit-reducing measures, while the non-complying countries are set to remain trapped in a vortex of radical cutbacks.

Everyone is aware of the absurdity inherent in such a decision. If only the countries that have balanced public finances are allowed to put recovery policies into action, this will consolidate the division of Europe into fast-lane and slow-lane economies: on the one hand, Germany and Finland, among the major states, and the rest of the economic area on the other.

It is true that the recovery policies admitted on such a limited and selective basis at least constitute a break with the preposterous situation in which, throughout an entire monetary zone, all the countries practice the masochism of budgetary restrictions; but it is also true that the selective rule excludes three major countries from the prospect of recovery. What’s more, their economic growth would be most beneficial for the euro zone — this being the case of France, Italy and Spain.

Capital flows

The economic policies of the euro zone are slipping in the direction of another absurdity: an impasse in which the countries that most need investment have no facilities to access it, while those that stand in a better financial situation — helped indeed by the continual flow of capital from the south of Europe to the north — can consider stimulus measures on a discretional basis.

It is not by chance that this project, which will probably be approved in the spring, will coincide with the German elections, and with a looming threat of stagnation of the German economy, which can still be easily averted.

The European Union vice-president Olli Rehn has affirmed that this decision is not a “golden rule” — that is, a permanent exception. He has a point — it is, in fact, a leaden rule, which places a further obstacle in the path of economic recovery, precisely in those countries that are suffering the highest rates of unemployment.

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