Rehn gives away the game

A refrain heard endlessly by followers of the recent series of reforms in European economic governance is that the increased budgetary restrictions do not affect the composition of a balanced budget, but rather simply insist on a balanced budget. In the patronising and oft-heard expression: you can have a high tax-high spend government, and you can have a low tax-low spend government, but you can’t have a low tax-high spend government. 

For a moment I want to ignore the fact that these restrictions don’t address the question of the cyclicality of government spending. (See recent comments by the IMFs Craig Beaumont on Ireland’s budgetary path for a contrasting approach to rule based fiscal policy.)

But putting that concern aside, there has been a widespread suspicion, especially by those of us on the ‘left’, that really these budgetary rules are about reducing social expenditure, not simply about balanced budgets.

In France, Francois Hollande has made some moves to balancing the budget by increasing tax rather than cutting social expenditure. (The permitted “high tax-high spend” option mentioned above.) But for this he has been unofficially reprimanded by Olli Rehn EU Commisioner for Economic and Financial Affairs, (i.e. the EU Finance Minister):

In an interview with the French weekly Le Journal du Dimanche, Olli Rehn, commissioner for economic and monetary affairs, said that tax levels in France had reached a “fateful point”. “Budgetary discipline must come from a reduction in public spending and not from new taxes,” he added.

While this has been mentioned already is, ahem, more widely read forums, I wanted to make a little note of it myself.