Europe Insights - May 2021
- As the European economy re-opens, the challenge of the region’s debt sustainability will emerge. How will more domestic resources be generated when public debt-to-output ratios are estimated to reach 100 per cent in the eurozone in 2021 (160 per cent in Italy, 115 per cent in France and 75 per cent in Germany)1, while the European Union fiscal rules set the limit at 60 per cent?
- The pandemic crisis has revealed the challenges around health issues, social responsibility, and climate change risks. More globally, the new US administration has clearly shifted towards more public participation to address these challenges, signaling the chase for additional public resources
- A reshaping of the global taxation framework is good news for the EU, which has battled against tax avoidance for years, and for a ‘fair’ approach to taxation. Multilateral negotiations involving the US increases the probability that large multinational firms will pay more taxes than in the past, and that countries with a large customer base will receive higher tax revenues
- The EU climate policies imply further regulation and taxes, increasing the costs both to European industry and consumers. Differentiated fiscal approaches are expected in order to avoid an abrupt tightening of public revenues and expenditures in the region
- EU fiscal rules are expected to be re-introduced in 2023, and discussions are underway about adding a ‘golden rule’, a key change to the existing framework