The first round of discussions on the reform of the Stability and Governance Pact in Luxembourg on Friday 16 June provided an opportunity for the EU Member States to reiterate their priorities on this dossier, with France and Germany remaining opposed to the introduction of numerical criteria for the consolidation of public finances.
The EU countries see the European Commission’s legislative package as a good basis for developing a regulatory framework that will make it possible to reduce the deficit and debt while creating room for manoeuvre to carry out structural reforms and make investments (see EUROPE 13170/1). The aim remains to reach a political agreement in the EU Council in autumn, under the Spanish Presidency, so that negotiations with the European Parliament can be concluded by the end of 2023.
We need to “keep up the momentum” because, even if there are areas of disagreement, “the Member States are determined to reach a compromise” by the end of the year, said the Swedish Finance Minister, Elisabeth Svantesson, after the meeting.
Drawing on the op-ed he drafted with 10 other Ministers (see EUROPE 13202/7), the German Minister, Christian Lindner, reiterated Germany’s call for the inclusion of “quantitative targets” in European Union law to put public finances on a sounder footing. The credibility of the Member States in the eyes of the financial markets is at stake, he said.
Although the letter from the 11 countries does not specify any figures, the German Liberal has indicated that his country maintains its demand that a Member State with a high public debt should reduce its debt by 1% per year. “If a country with a debt equivalent to 100% of GDP follows this trajectory, it will take 40 years to get back under the 60% threshold”, he argued on his arrival in Luxembourg.
Among the countries in favour of introducing quantitative criteria to guarantee budgetary consolidation are Denmark, Portugal, Austria, Hungary, Slovakia, Estonia and Bulgaria. According to the Austrian Minister, the criterion that a country’s public debt should be lower at the end of the adjustment period should be clarified because, in his view, a reduction in debt equivalent to just 1% of GDP over the period would not be credible.
The Danish Minister insisted that granting a longer period (between 4 and 7 years) for budgetary adjustment should be conditional on a commitment to reforms that genuinely reduce expenditure or increase revenue.
Opposed to a return to the current fiscal rules if the Stability Pact is not reformed before the end of the year, the French Minister, Bruno Le Maire, felt that the positions of the EU27 on reform were “close”. In his view, the focus needs to be on “the only issue that separates us”, namely that of quantitative criteria. “We are opposed to any automatic rule for reducing public debt”, he declared, describing this measure as an economic and political mistake. In his view, all it takes is a downturn in the economy for such a measure to backfire on the Member States and plunge them into recession, a situation that would ultimately lead to further indebtedness.
The Italian Minister, Giancarlo Giorgetti, insisted on rules that would stimulate investment, in particular those that are a priority for making the climate and digital transitions a success. In this respect, he called for special accounting treatment for investments provided for in national recovery plans as part of the Next Generation EU European Recovery Plan.
Several countries have requested that, given the current geopolitical situation, defence spending should receive special treatment. For Estonia, Poland and Greece, this expenditure should be able to be considered as a relevant factor to be taken into account in the event of a slip in public finances. Latvia believes that this expenditure should make it possible to extend the budgetary adjustment period. But none of these countries has advocated a ‘golden rule’ to exclude defence spending from the calculation of the public deficit.
Finally, Croatia and Hungary questioned the methodology and data used to analyse the sustainability of a country’s public debt (DSA), as this analysis is intended to help define the budgetary consolidation path. (Original version in French by Mathieu Bion)