Will it work ? The golden rule…Posted: September 7, 2011
After Spain, it is now the turn of Italy to put forward a golden rule. One can ask himself on the efficiency of such a measure -presented as necessary- after looking at the similar systems.
The American ceiling
The United States have a legal limit to their debt. It is the famous debt ceiling, which has been raised several times in the past years and almost led the USA into default in August 2011 – with consequences since the US debt has been downgraded by S&P.
Considering that, the limit is not efficient if raised if time the debt limit gets closer to it; and more than that, it is the cause of political battle less than prestigious where the deadlock is a regular tool.
The Golden rule already exists…
… since 1992, the convergence criteria in the Maastricht treaty forbid the member states using the euro to have a deficit larger than 3% and a debt larger than 60% of their GDP; or otherwise face sanctions. However, many countries today have an excessive deficit. Germany and France, the very defender of the golden rule today, even insisted in 2005 to loosen the convergence criteria.[*].
The Golden rule of budget balancing might be more of a communication opportunity and a wishful idea that what we are told.