In advanced economies, fiscal multipliers ii are particularly high for public investment:  In this respect, this harsh crisis can also be an opportunity to bridge the skills and innovation gaps thanks to productive investment. But unfortunately, this key debate over the quality of spending is the blind spot in our European democracies. II. Public finance in France Now, allow me to illustrate these principles with reference to the country I know best. In France, we sometimes have a strange relationship with austerity: we are the country that fears it the most but one of those that practises it the least. This unfounded fear distracts us from our real problem: the weakness of our growth and the excessive cost of our public services even though we have the same social model as our neighbours. I strongly believe in our European social model, which is not a handicap but one of our strongest common European assets. And let me be clear: I am not promoting austerity – with cuts in public expenditure – but moving gradually towards a stabilisation of public expenditure in real terms. Our challenge is the 10 percentage-point differential between our government spending-to-GDP ratio and that of the rest of the euro area:  Since 2008, the pace of growth rate in our public expenditure has diverged significantly from that of GDP growth, in contrast to Germany or the rest of the euro area.
Yes, a big step forward has been made thanks to Next Generation EU, financed by a shared debt instrument. Before thinking of possibly increasing its size, we should accelerate its implementation: speed, even more than weight, is what is currently lacking in Europe. But our real leap forward will come when the existence of a permanent common fiscal capacity, – although less limited in amount, although different from a standing budget because not systematically activated, – allows genuine countercyclical action to be taken. Conversely – and not contradictorily –, adequate fiscal discipline is key to cope with economic reversals. Look at Germany, which fixed the roof while the sun was shining, and made appropriate use of its financial leeway during the crisis. There will be a debate, to be concluded most likely next year after the German and French elections, on the Stability and Growth Pact, following three years of warranted suspension between 2020 and 2022. We should avoid a fruitless confrontation between “illusionists” – who plead for debt cancellation, which is completely out of the question – and “traditionalists” – who want to keep the same old rules as if nothing had changed, including on the level of interest rates. We do still need rules, but revised and simplified ones. Indeed, the current low interest rate environment (with r<g) does not mean that public debt sustainability issues have become irrelevant: it only implies that governments have more time to ensure debt sustainability.