On Tuesday 14 February, EU Member States began discussions on reforming the European economic governance framework on the basis of proposals made by the European Commission last November (see EUROPE 13060/1). They are not out of the woods yet if they want to achieve the Swedish Presidency of the EU Council’s goal of developing clear guidelines which will be presented to the EU institution in March, in the form of conclusions to be adopted unanimously by the Member States.
Referring to “long” discussions, Swedish Finance Minister Elisabeth Svantesson highlighted the “different starting points” of the Member States on this issue. However, many of them felt that multi-annual rules “combining fiscal adjustment, reforms and investments” are needed “to address the challenges of public finances”, she noted. A key issue for future reform, she said, will be to find “the right balance between national ownership of the rules and a robust regulatory framework”.
The European Commission’s executive vice-president, Valdis Dombrovskis, also insisted on this search for balance between ownership of national budget consolidation paths and common rules that ensure “fair treatment, transparency and more predictability”.
A majority of Member States were against the ‘bilateralisation’ of budget negotiations between a capital and the Commission, according to a source close to the discussions. This is a hard-line position taken not only by ‘fiscally frugal’ countries, such as Germany (see EUROPE 13111/19), but also by other net contributors to the EU budget.
On his arrival at the Ecofin Council on Tuesday, the German Minister, Christian Lindner, admitted that with the Covid-19 pandemic and the Russian aggression in Ukraine, the budgetary situation of the Member States, characterised by a higher public debt ratio, had changed and needed to be taken into account. “We acknowledge the investments’ needs, private and public, but it’s not an excuse to avoid structural reforms in our economies. So we are open for more flexibility, from a medium-term perspective. But we need reliable paths for debt/deficit reductions”, he said.
Member States have again urged the Commission to provide the necessary parameters to determine how these trajectories will be set.
“Part of the answer is the reference path for each Member State based on a common methodology to compare Member State plans, taking into account the debt sustainability assessment”, Dombrovskis acknowledged.
The Commission proposed that Member States should present macro-fiscal plans covering a period of 4 to a maximum of 7 years, during which their public finances should conform to a path of gradual reduction of excessive public debt or, for low-debt countries, maintain a prudent fiscal policy. This would give Member States more room to negotiate with the European level on the investments and reforms they want to undertake. If deviations are found, the Commission would be empowered to take a firmer line in enforcing the rules, including through possible sanctions.
Regarding the timetable, Dombrovskis said that the Commission was ready to present a formal legislative proposal soon after the spring European Council meeting at the end of March so that it could be adopted under the co-decision procedure before the European elections in spring 2024. In parallel, the EU institution will present guidelines on fiscal policy in 2024 before the future European fiscal rules apply and in order not to subject Member States to the provisions of the Stability and Growth Pact, of which the provisions on public debt reduction are too restrictive (1/20 rules). (Original version in French by Mathieu Bion)