The legislative package aimed at reforming European fiscal rules, which the European Commission unveiled on Wednesday, is a good basis for discussion, several euro area Finance Ministers said on Friday 28 April on the sidelines of the Eurogroup (see EUROPE 13170/1).
Some, such as Spanish Minister Nadia Calviño, welcomed the fact that the very existence of legislative proposals would allow work to be officially launched at national expert level. Announcing that Spain would bring its public deficit back below 3% of national GDP by 2024, Mrs Calviño promised that the next Spanish Presidency of the EU Council would try to go “as far as possible” towards a qualified majority agreement of Member States.
In March, the Ecofin Council called for a political agreement before the end of 2023 (see EUROPE 13141/22). Technical work in the Council will start in early May with a view to a ministerial debate in June.
Unsurprisingly, Member States agree on the need to strike a balance between fiscal consolidation and preserving budgetary margins of manoeuvre to finance the massive investments in climate and digital transitions.
But the difficulties to be overcome remain numerous, according to the divergent positions expressed on Friday in Stockholm, starting with the Franco-German tandem.
Continually stressing the need to reduce the public debt accumulated during the Covid-19 pandemic and this winter’s energy crisis, German Finance Minister Christian Lindner acknowledged that the Commission’s proposal - in particular the provision to impose a reduction in the public deficit of 0.5% of GDP for all countries whose deficit exceeds 3% of national GDP - is a step forward towards German positions.
“For us, it is important to have quantified requirements and to anchor in the rules a safety line, a safeguard, which ensures that there is a steady reduction in deficits and debt ratios”, he said.
Germany even advocates a reduction in public debt equivalent to 0.5% to 1% of national GDP for highly indebted countries (see EUROPE 13158/15).
His French counterpart, Bruno Le Maire, countered with the principle of “differentiation”, according to which the revised Stability and Growth Pact should take into account different national fiscal situations, notably in terms of debt.
“Better not to reintroduce bad ideas through the back door”, because “the old rules won’t be efficient in a new world”, he said. He also recalled the sovereignty of the Member States in the choice of reforms and budgetary cuts to be made to consolidate their public finances, referring to the pension reform, which is highly contested in France.
However, on the provision on the 0.5% of GDP deficit reduction for countries in excessive deficit, France is of the opinion that it should be a ‘guardrail’ that cannot be applied to all situations. But it accepts its binding nature.
ECB President Christine Lagarde welcomed the elements of the legislative package to: - strengthen ownership of the rules at national level; - consider a medium-term perspective for a “realistic, gradual and sustained” reduction in public debt in order to create fiscal space for reforms and investments; - better enforce the rules by sanctioning, if necessary, offending countries. She did not specify her position on the introduction of common numerical criteria for deficit and debt reduction.
According to European Commissioner for Economy Paolo Gentiloni, the timetable for negotiating and approving the legislative package is tight, given that the ‘unfreezing’ of the Pact will take place at the end of 2023, but it is achievable, if all States engage constructively in the negotiations. According to Mrs Lagarde, no Member State considers it “desirable” to return to the application of the current fiscal rules, which include a steep path for reducing public debt (the 1/20th rule) for highly indebted countries. However, this rule is considered to be counterproductive, as it is too restrictive.
On his arrival in Stockholm, Mr Lindner had certainly hoped for a rapid positive outcome on the reform of the Pact. “Until we have new rules, the current rules apply. So we are not in a vacuum”, he said. (Original version in French by Mathieu Bion)