The European finance ministers have agreed to move on to the “political negotiation phase” on the reform of the European economic governance framework, according to the Spanish minister, Nadia Calviño, who hosted the informal ministerial meeting in Santiago de Compostela on Saturday 16 September (see EUROPE 13250/2). She noted that the Member States were “ unanimous” in their desire to intensify discussions and reach an agreement at the Council of the European Union before the end of 2023.
According to Ms Calviño, almost “70%“ of the legislative package on the table is the subject of informal agreement at technical level. There remains the eminently political part, in which the ministers will have to become personally involved in order to find, according to the minister, a point of balance that favours a gradual and sustained reduction in public debt, while allowing the necessary space for public investment in the climate and digital transitions and structural reforms.
She also highlighted the importance of achieving fiscal rules that recognise the specific nature of national situations, while retaining common rules that guarantee fair treatment for all Member States.
According to several participants, the Spanish Presidency of the EU Council did not present delegations with any possible options for reaching an agreement, preferring to focus its briefing on the timetable. Ms Calviño said that she hoped to be able to submit a draft compromise to her counterparts ahead of the Ecofin Council meeting in Luxembourg on Tuesday 17 October. However, the likelihood of reaching an agreement on this occasion appears low, with these sources pointing to the Ecofin Council meeting on Thursday 9 November. Extraordinary ministerial meetings are not ruled out in order to meet this timetable.
The Executive Vice-President of the European Commission, Valdis Dombrovskis, supported the Spanish approach, which he aptly described as the ‘road to Santiago’. His economic counterpart, Paolo Gentiloni, praised the willingness of all the delegations to reach a compromise. He said that from their point of view, the proposal made is open to modifications, but if corrections are necessary, they cannot be modified in only one direction, otherwise the balance of the legislative texts presented would be called into question.
Relevant factors. The creation of a golden rule to exclude certain public spending from the calculation of the deficit is not receiving sufficient support, with the Netherlands warning against opening a fiscal ‘Pandora's box’. During the discussion, several delegations, including Italy, nevertheless advocated specific treatment for national co-financing provided as part of investments financially supported at European level and for the treatment of interest on loans contracted as part of the Next Generation EU Recovery Plan.
Furthermore, the Baltic countries are in favour of excluding defence spending because of the investment needed to support Ukraine against the Russian military invasion. Failing the introduction of a specific golden rule, the negotiators plan to broaden the number of relevant factors that allow a Member State to justify a deviation from its fiscal path in order to avoid the opening of an excessive deficit procedure.
2024. Even if the European Parliament and the Council of the EU reach a rapid Interinstitutional Agreement on the reform of the Stability and Growth Pact, the future rules will not apply until 2025. Therefore, 2024 will be a transitional year during which the European Commission will assess national budgets on the basis of the guidelines provided in the spring as part of the ‘European Semester’ budgetary procedure (see EUROPE 13187/22). The Commission’s recommendation to the Member States for a prudent fiscal policy for 2024 was reconfirmed by the Eurogroup on Friday (see EUROPE 13251/9).
In the event of a European Parliament/EU Council agreement before the European elections, the Pact, as reformed, will form the basis of the 2024 ‘European Semester’ exercise with a view to preparing the 2025 draft budget plans, said Mr Dombrovskis.
According to one source, the ministers want to reach an agreement to avoid a return to the current fiscal rules, which have been frozen since the outbreak of the Covid-19 pandemic in March 2020. And a balance could be found if the countries in favour of austerity, led by Germany, obtain a provision guaranteeing a clear minimum level of debt reduction based on a figure, and if the other countries, which point to the enormous future investment needs in the EU, obtain more room for manoeuvre for investment than the current Pact allows. (Original version in French by Mathieu Bion)