+++ 29. September 2012 +++
The Myth of the 3% Deficit to GDP Ratio, in Its Inventor's Own Words
Throughout the European Union, people are being told that they must suffer so that the deficit not exceed the Gross Domestic Product by more than 3%. But just where does that sacrosanct figure of 3% come from? Contrary to what many Europeans believe, it's quite a bit older than the Maastricht Treaty criteria, and it was not invented in Germany, but in France.
Indeed, after French Prime Minister Jean-Marc Ayrault again promised on Sept. 27 to reduce the deficit to that "magical" figure, Le Parisien decided to meet the man who came up with the ratio in the first place. His name is Guy Abeille, and he was at the time a high-ranking civil servant in the Finance Ministry. He admitted quite frankly to Le Parisien that he had invented it one evening in late June of 1981 and that it has no basis in economic theory!
However, he said, at the time, President François Mitterrand was looking for an "easy to remember, round figure", which he could use to stop his ministers from overspending.
Back on Oct. 1, 2010, Abeille had published in the financial daily La Tribune, a thorough (and flippant) account of that fateful June 1981 evening. There, he says that he and a colleague in the Budget Department were approached by their boss with the request from Mitterrand, to be given a "simple, utilitarian rule, bearing an expert's chrism, and thereby unquestionable," which he could use to curb spending.
Accordingly, Abeille and his colleague considered different statistical measurements that might be used, and they finally decided on the deficit (something that sounds bad to everybody), and on GDP (which he calls the "universal life jacket" for economists who are having trouble finding a proper reference).
In fact, Abeille wrote in La Tribune, that ratio itself is completely irrelevant, it's "like dividing cabbages by carrots". Because the deficit is the debt that has to be contracted now and paid back over the years, while GDP is only the wealth produced in one year. The only relevant criterion, he writes, is thus the ability to reimburse the debt when it comes due.
And why did they take 3%? Easy! because the GDP forecast for 1982 compared to the planned deficit was just under 3%! "The only basis for it is the circumstances" of that time. 1% would have been too little, he said, and 2% too restrictive. So they brought the 3% magic formula to the head of their Department, who forwarded it to the government.
By August, for the first time in public, Budget Minister Laurent Fabius referred to the deficit-GDP ratio, putting it at 2.6%. After various press reports on the 3% presidential directive, Mitterrand himself declared in June 1982, that the deficit could not exceed the magic, totally made-up, number.
Over the years, it became a mantra. And finally became European-wide, written into "Mitterrand's Baby", the Maastricht Treaty.
By the way, Monsieur Abeille seems to be completely oblivious (or indifferent) to the ravages his cynical calculations have justified.
~ deutsch + english ~
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