15 minute read
Mairéad Farrell TD on eurozone fiscal rules
Reforming the Fiscal Rules: A radical shift or short shrift?
The EU Commission has relaunched its review of the eurozone’s fiscal rules. Announced with something of a whisper, expect a lot of raised voices in the coming months. Sinn Féin Spokesperson for Public Expenditure and Reform, Mairéad Farrell TD, writes.
Thankfully, the fiscal rules of the European Monetary Union were suspended at Covid’s onset and will not return until 2023.
For the uninitiated, the rules place limitations on members’ debt/deficit levels. As such they have a significant impact on economic performance. Two of the principal requirements are firstly, budget deficits below 3 per cent of GDP and secondly, debt to GDP ratios below 60 per cent.
Their suspension allowed states to undertake the necessary countercyclical spending needed to address the pandemic.
Nearly 30 years old, as long as the rules have been with us, so too have been calls for reform. It is speculated the Commission will propose their simplification, greater incentives for productive investment, and changes to debt-to-GDP ratios.
Submissions from members states are being sought and it is essential we have our say. As the IMF pointed out, we are facing a future of considerable uncertainty. Uncertainty for our low corporate tax model, corporate tax revenues, and environmental performance.
Going forward, when it comes to economic growth, if we are to achieve growth that is sustainable, inclusive, and leads to shared prosperity, we will increasingly have to ‘grow our own’.
This requires an entrepreneurial state with visionary/strategic public investments distributed across the innovation chain, which create synergy between the state and private sector, and positive spill overs raising the animal spirits of entrepreneurs.
However, the rules as currently constituted will act as a barrier to that, straitjacketing not only our national efforts to achieve a Just Transition/Green New Deal, but wider European efforts.
Below, I make case for reform, outline what kind of reformation is required and why our government needs to become actively involved in the reform process.
The fiscal rules
First, let us understand the concept of fiscal rules. They are self-imposed constraints governments place on fiscal policy, by establishing numerical limits/references for public finance aggregates (think budget balance, expenditures, public debt). The purpose being to marry short-term stabilisation of economic policy with the longer-term sustainability of public finances.
First gaining popularity in the 1980s, countries shifted macroeconomic policy from the post-war Keynesianism toward the monetarism of Milton Friedman, which found disciples in Thatcher/Reagan. help to prevent debt externalities, a situation where one nation’s debt troubles (default risk) could have spillover effects for its neighbours. But they came into existence at a time of historically high interest rates, which have been in secular decline ever since. This new world of low and negative rates lowers default risk.
However, it presents a new problem. With monetary policy having lost its stimulatory ability, we are left with a new externality – a demand externality. This can only be addressed fiscally.
Rules made to be broken
Rules built around debt/deficit ceilings will not necessarily be a good proxy for debt sustainability. Sustainability does not just depend on present debt/deficits, but on future things like interest rates, primary balances, and growth. The future is radically
According to economist Bill Mitchell, “the rationale of controlling government debt and budget deficits were consistent with the rising neo-liberal orthodoxy”.
Under this framework independent monetary policy was responsible for delivering price stability, with fiscal policy to be more limited. New Zealand was a first mover passing its Public Finance Act (1989), the same year that Jacques Delors published the Report on Economic and Monetary Union in the European Community.
Interestingly New Zealand was again a first mover, recently reforming its rules on the basis that “arbitrary debt and spending targets are not appropriate and have limited the Government's scope for change”.
Between 1990 and 2015, countries with national/supranational rules jumped from five to 96. It is worth pointing out that two of the main eurozone requirements; budget deficits below 3 per cent and a debt ratio below 60 per cent, were selected arbitrarily, were not grounded by any serious empirical research, and lacked any solid theoretical foundation.
What I mean here is there was nothing to demonstrate that 3 per cent deficits were more sustainable than 4 per cent. It depends on the circumstances which they arise and how the spending is deployed. The 3 per cent rule implies deficits above this size are problematic, but sometimes deficits in excess of 3 per cent are part of the solution, like when the economy is in the midst of a pandemic.
They were also justified on the basis that they would uncertain, and whilst we expect interest rates to remain low, debt serviceable and favourable towards investment, the fact is we don’t know what the future holds.
Regarding the primary balance a country can achieve, multiple factors are at play: its tax base, the composition of its government, the business cycle, demographics. This does not mean we should try to add more provisions, because the sheer amount of different possible contingencies renders this too difficult.
The Commission has made various attempts to tweak the rules since their establishment, but it is merely served to add increasing layers of complexity and opacity. One former IMF chief economist compared their evolution to the Cathedral of Seville, a byzantine like structure integrating successively complicated layers.
Moreover, compliance has been poor. One study found that “the share of countries with a debt ratio greater than 60 percent increased from 35 percent in 1999 to 75 per cent in 2015”. Given the large level of additional pandemic spending, they will need to be modified otherwise there will be an automatic return to austerity.
Thankfully, the Commission gets this and comments by certain top Eurocrats indicate an upward revision of debt levels is on the cards. For example, Klaus Regling the head of the European Stability Mechanism, said that countries can “comfortably live with” higher debt. But is this enough? 4
Towards a reformation
Since introduced there have been calls for them to be rejigged or outright rejected. Precluding abolitionist calls, reformist proposals included exempting public investment, cyclically adjusting the 3 per cent ceiling, shifting from a deficit ceiling to a public debt ceiling, etc.
For now, let us recognise their procyclicality. In other words, they do the opposite of what is intended. Prior to 2008, this meant member states did not push to reduce debt, but after the onset of the financial crisis, they rushed to cut debt/spending when they should have done the opposite.
Fiscal rules should be countercyclical, and yet despite the various amendments made over the years, the outcomes have been mainly procyclical. That is why the Commission acted so swiftly to have them suspended.
Any reforms must account for the environmental crisis. We should aim to introduce some form of ‘golden rule’ which revised the current investment clause. This revision could create the kind of flexibility that would exempt ‘green’ public investment from debt/deficit considerations.
Currently there’s an investment clause which provides scope for exempting investment that has “positive, direct and verifiable long-term effects on growth and on the sustainability of public finances”, but restrictive conditionality means only two EU countries (Italy and Finland) ever qualified. Naturally, some would argue this would be abused, but checks and balances could be used. The maximum amount of green investment states could exempt could be limited to the size of their ‘green investment gap’. This could be funded through ‘green bonds’ the size of which is determined by this gap and reviewed annually.
Credit: Sinn Féin
Conclusion
Once negotiations begin, dividing lines between northern (surplus) and southern (deficit) countries will emerge. The former favouring a stricter fiscal stance, the latter a more growth orientated approach. Irish governments often sought to associate themselves with the former.
However, the coming international tax changes will see our GDP fall in the future, meaning our interests will lie with southern countries. Our overinflated GDP previously made this debt/GDP ratio manageable. But if GDP falls our debt rises as a proportion of it, hampering our ability to spend at a time when we need it to expand.
More importantly, minor reforms will not help us combat an existential climate crisis. We have a narrow window of opportunity to implement a paradigm shift, but in order to influence the debate the Irish Government needs to get on the pitch.
Unfortunately, they are not even at the grounds yet, they have not togged out and they are seemingly unaware that the match just kicked off. Come on lads, it’s all to play for.
Health report
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Removing barriers of digital transformation in healthcare
The pandemic has changed the face of every organisation for good, and none more so than those within healthcare. As healthcare organisations focus on the road ahead, they face changing patient expectations for virtual care, along with new clinical and business realities, writes Ryan Heynes, Healthcare Lead, Dell Technologies.
Providers are challenged to keep their staff safe, provide non-urgent clinical services and prepare for resurgent needs, all whilst supporting a remote and sometimes disparate workforce, not to mention the continuing impact of the pandemic.
Given the focus on short-term operational challenges over recent times, many healthcare organisations have yet to address the new ways of working required to satisfy the ever-evolving needs and demands of patients into the future.
When I was asked to lead the healthcare business for Dell Technologies a year and a half ago, I was both apprehensive and excited about the opportunity that digital change could bring to our health system.
However, I was reassured to join a wellestablished, dedicated healthcare team in Dell Technologies, brimming with experience from around the world in various healthcare disciplines and very much aware of the great responsibility that comes with our role. I recall one of my now colleagues explaining to me that “technology in health is similar to other industries but having the right solutions can actually be a matter of life or death”. Needless to say, this was a little daunting.
Dell Technologies has a long history of supporting healthcare organisations in Ireland and beyond to realise the potential of technology in delivering patient care, as well as helping clinical providers to optimise their applications for use in healthcare environments.
We currently support over 10,000 hospitals worldwide with digital transformation programs and with our team of over 200 healthcare specialists we are well positioned to understand the unique and demanding requirements that healthcare providers have.
As we look ahead, it’s clear that healthcare providers will have to contend with an ageing population. More than 700 million people on the earth today are aged 65 or over, approximately 9 per cent of the entire global population. The United Nations (UN) predicts that one out of every six people will be over the age of 65 by 2050. In Ireland, it's expected to be more than one-in-four with the number of people aged 75-84 set to jump by 76 per cent by 2031. With advances in medicine and technology helping people live longer, this trend is only set to continue.
However, as we live longer and see an increasing number living with chronic conditions, Ireland’s population will require additional healthcare supports. Globally, on average one-in-three of all adults suffer from multiple chronic conditions (MCCs). In Ireland, the situation is even more pronounced with over 50 per cent of adults suffering from at least one chronic condition, and 40 per cent suffering from two or more. The most common conditions include coronary heart disease, arthritis, cancer, stroke, dementia, hyper-tension and high cholesterol, diabetes, and chronic obstructive pulmonary disease (COPD). Advances in technology are helping healthcare organisations to treat these diseases more effectively, but they are also helping patients to self-manage their own care more effectively, or to “stay left” by taking responsibility for administering treatment on time and recording changes in their condition. This in turn has led to a richer set of data being captured by health care providers, who are utilising advanced analytical programs to determine optimised treatment pathways and new drug combinations to improve a patient’s outcome.
In addition to “staying left” and managing your treatment from home, technology is supporting the “shift left” movement focused on moving patients out of the acute hospital settings which are invasive and expensive, into a community or home setting to be treated. These initiatives underpin the Sláintecare strategy for modern healthcare, but also align with a proactive health model or what’s known as the “wellness model” of keeping people healthy and preventing illness, which is the opposite approach to our current “sickness model”, whereby you become ill and look for treatment. 4
Speaking of treatments, the speed at which new treatments and drugs are being developed and released into the market seems to be a major cause for concern amongst some individuals. The Covid-19 vaccine is an example in point, whereby there is still a level of mistrust and fear amongst communities about the vaccine due to misinformation that has spread about the speed at which the vaccine was developed and released, fuelling concerns about safety and potential side effects.
But what isn’t so well understood is how the use of new technologies such as artificial intelligence and machine learning have helped to dramatically speed up the analysis of the research data that previously would have taken months and potentially years to understand, enabling it to be analysed in a matter of minutes or hours. Similarly, the use of technology to automate the manufacture and distribution of these drugs reduced the time it took to mass produce and deliver the vaccine to healthcare organisations around the world.
This is another area with which Dell Technologies have been supporting industry leaders within the pharmaceuticals sector: utilising these complex technologies to bring drugs to market quicker, enable patients to benefit from them earlier and receive improved treatments that will lead to a better quality of life. Technology can sometimes be perceived as complex and a little scary to some. This is often a major barrier to digital transformation across any industry. One of our goals in the Dell Technologies healthcare group is to help more people who work in healthcare roles better understand the basics of technology in health and de-mystify some of the more emerging technology trends.
One of the initiatives we started to discuss after a short time in the role was an open briefing programme, which in partnership with the HSE quickly evolved into a six-month, recognised diploma programme. We wanted to make the initiative free, flexible, and engaging for anyone working in healthcare.
The diploma, now entitled Digital Futures in Healthcare, helps to highlight several key healthcare technologies and inform healthcare staff of their benefits, how the technologies have developed and continue to develop and the potential use cases in improving care for patients.
We marry industry expertise from our global healthcare team to local expertise from leaders across our health system to highlight key digital health technologies in a short two hour fully produced webinar format.
The course is set across six separate modules, each focusing on a different type of technology used in the treatment of patients. The Digital Futures programme has been designed to be accessed by staff at any level working across any discipline in healthcare. So, whether you’re a Chief Executive or in a clinical role or IT role, it doesn’t matter. Everyone working in healthcare has a role to play in driving digital transformation which, in turn, will deliver better patient and clinician experiences and, ultimately, better outcomes.
The numbers registering for the programme has been simply incredible, with over 1,500 people taking part in the program. Numbers are still rising as we continue to accept registrations, with content available on demand after each broadcast.
We are now in the fourth month of the course and feedback has been really positive from across the board, with lots of suggestions and requests for additional topics to be covered in follow-up initiatives.
Why should people sign up? Quite often new technologies can be implemented in complete isolation from the other teams across a hospital or healthcare organisation, with very few understanding the reason for its implementation or the benefits it can bring. We have seen new innovations in the use of these technologies come from staff who are not involved in its primary use, but who understand the capability of these technologies and apply it to their own work environment.
Through sharing and helping people to understand the benefits of these technologies, we hope to empower staff to come up with their own innovations and identify new capabilities for using technology to improve patient care, along with improving adoption rates. This will result in better outcomes for all and help remove the barriers to digital change.
E: Ryan_Heynes@dell.com W: www.dell.com
If you would like to register for the Digital Futures in Healthcare program and access the On-Demand content from previous sessions, you can find all the information on this website:
