Following the informal ministerial meeting in Santiago de Compostela, the Spanish Presidency of the Council of the European Union has initiated the negotiation phase for the most political points of the reform of the Stability and Growth Pact (see EUROPE 13252/18).
The Spanish Presidency has made a suggestion to the national delegations regarding the level of multi-annual adjustment, calculated in terms of ‘net public expenditure’, which would apply to Member States with excessive debt over the entire duration of their national macroeconomic plan (see EUROPE 13170/1).
As a study by the Bruegel think tank published in mid-September showed, the European Commission’s initial proposal would force France, whose public debt stands at almost 110% of national GDP, to make an adjustment of 1.1% of GDP over a 4-year period (or €29 billion), or 0.4% of GDP over a 7-year period (€10.5 billion).
At the European Parliament at the end of September, one of the authors of the study, Jeromin Zettelmeyer, described the Commission’s initial proposal as “ambitious”, in that it would involve, on average, a budgetary adjustment equivalent to 2.0% of GDP in the medium term, or even 2.5% of GDP in the case of a four-year macroeconomic plan.
For most countries whose debt exceeds 60% of GDP, the adjustment requirements are driven by the assessment of public debt, rather than by quantitative criteria (‘safeguards’), but “with significant exceptions, mainly France”, indicated Mr Zettelmeyer.
In its draft budget plan for 2024, France plans to reduce its public deficit by €16 billion, including the removal of €10 billion from the energy shield introduced to help the French cope with the energy crisis last winter (see EUROPE 13259/11).
Taking up a Danish proposal, the Spanish Presidency suggests applying the expenditure criterion as an average over a longer period, i.e. 4+10 years or 7+10 years depending on the duration of the national macroeconomic plan. This would allow the level of budgetary consolidation to be smoothed out over time, taking account of the economic situation.
The issue of introducing quantitative criteria for consolidating public finances continues to divide the euro area’s two major economies. Germany believes that the Spanish Presidency’s proposal reduces the ambition of the initial proposal, which they already considered unsatisfactory. At this stage, France does not want to hear about binding uniform quantitative indicators which, in its view, would signal a return to economic austerity and have a pro-cyclical effect.
The Spanish Presidency aims to present an overall compromise proposal on the reform of the European economic governance framework for the ‘Ecofin’ Council meeting in Luxembourg on Tuesday 17 October. However, a political agreement by the Member States by this deadline seems out of reach.
See the Bruegel study: https://aeur.eu/f/8tq (Original version in French by Mathieu Bion)