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Introduction: Belgium on the Eve of the Sovereign Debt Crisis
- Leuven University Press
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Introduction 11 Introduction belgium on the eve oF the great sovereign debt crisis Etienne de Callataÿ 1 I would prefer not to Herman Melville, 1853 The decade from 2000 to 2010 in Belgium is characterised by a sharp deterioration in the most popular performance indicator in the field of public finance, i.e. the overall fiscal balance, which went from balance to a 4% deficit. But there is no such thing as a key performance indicator (KPI) when it comes to assessing fiscal policy. The quality of the latter, in particular in terms of efficiency, fairness and sustainability, cannot be summarised by a single figure leading to a thumbs up / thumbs down type of conclusion. The ultimate objective of the collection of essays presented in this book is not to provide a final, authoritative assessment of the policy choices made by those who have been in charge of our collective purse over the first decade of the millennium. Its purpose is to gather à chaud a first set of contributions providing a detailed factual overview of the major developments over the recent past in the field of public finance in Belgium coupled with an in-depth analysis carried out by the best experts in the various sub-domains, whether academics or civil servants. The caveats 1. Etienne de Callataÿ is chief economist at Bank Degroof, senior fellow at the Itinera Institute, and guest lecturer at the University of Namur and at the Catholic University of Louvain (UCL). He is grateful to Françoise Thys-Clément for her comments. 12 The Return of the Deficit of such an exercise are well known, including the personal bias of the contributors, the limited distance view, and the lack of exhaustiveness. 1. fiscal deterioration From the outset, the choice of the general title for this collection of essays – that does not bind the contributors – deserves some explanation. While nuance is always required for an academic work, every book needs a title, preferably short and fair and eye-catching all at once. The decision to go for “The return of the deficit” for a book devoted to public finance in Belgium from 2000 to 2010 was driven by two considerations. First, it appears indeed that the aforementioned deterioration in the fiscal balance has been a key evolution over the decade under review. The deterioration is even more pronounced when one leaves aside interest payments that benefited from a sharp decline in interest rates and from the so-called reverse snowball effect resulting from the fiscal consolidation recorded between 1993 and 1999. Indeed, the primary balance went from a surplus of 6.5% in 2000 to a deficit of 0.4% ten years later, and the structural primary balance exhibits the same pattern. Secondly, as this book is the seventh in the collection of publications edited every ten years under the auspices of the Belgian Institute of Public Finance and dealing with the recent history of public finance in Belgium, the general title also echoes that chosen in 2002 for the previous edition, which covered the years 1990-2000. Indeed, the title then was “The end of the budgetary deficit”.2 The end appears to have been short-lived! 2. the VANISHING DEBT hasn’t vanished The sharp improvement in public finance underlying the choice of the title ten years ago was not restricted to Belgium. The end of the budgetary deficit was a reality, or at least in sight, in many developed countries. In the European Monetary Union, countries had committed themselves, through sound fiscal balances, to lowering their debt-to-GDP ratio at a 2. de Callataÿ, 2002a. [35.168.113.41] Project MUSE (2024-03-19 14:51 GMT) Introduction 13 sustained pace. In the US, public projections made in 2000 announced that the US would have a zero debt-to-GDP ratio by the year 2012 – which, seen in 2012, serves as a gentle reminder about how volatile longterm fiscal projections and about how costly any departure from modesty and prudence may be. The fiscal consolidation was so firmly established that well-known economists published papers about the consequences of the so-called vanishing public debt. To mention just one of them, Vincent Reinhart, together with Brian Sack, in 2000 authored a paper under the explicit title of “The Economic Consequences of Disappearing Government Debt”. It talks about the US, in a situation quite different from that of a small open economy like Belgium having lost exchange rate and monetary autonomy, but...