A too rapid return to a balanced budget, quite apart from its social costs, will lead to long-term sluggish growth, largely due to a stifling of demand that will exacerbate budget deficits. These deficits will in turn reduce demand, causing a snowball effect that could push the European economy into an endless downward spiral.
A smart fiscal policy needs to break this spiral.
To achieve this, it would be good to:
- establish more ambitious and comprehensive financial market regulation in order to curb speculation. Otherwise, the continued existence of speculation will negate all the efforts made to achieve "smart fiscal consolidation";
- pursue a fiscal policy for growth, by:
- establishing a European bond to fund infrastructure projects by mobilising savings;
- creating Eurobonds, inter alia to reduce debt refinancing costs for struggling eurozone countries;
- making the most of the flexible time frame for consolidation, as a "big bang" would compromise growth prospects;
- use taxation to drive growth, by:
- making greater efforts to coordinate Member States' fiscal policies, in line with the EU treaties;
- improving cooperation in combating tax fraud by making the best possible use of Eurofisc;
- shifting the tax burden towards new sources of revenue, such as financial transaction taxes, energy taxes, levies on financial institutions, levies on CO2 emissions (subject to reorganisation of the carbon trading market), etc.;
- design taxes that internalise the externalities generated by the financial sector's behaviour such that they can help to create fairer conditions in the process of developing and harmonising the European internal market;
- create tomorrow's growth.