EU hawks set tough conditions for fiscal rule reform negotiations


EU Economic Update

A group of hawks EU finance ministers are preparing to take a hard line in negotiations to change EU budget rules after the pandemic, insisting that any reforms must not jeopardize fiscal sustainability or weaken debt reduction goals.

A document supported by the finance ministers of eight countries including Austria, the Netherlands, Denmark and the Czech Republic announced their willingness to discuss “improving” the EU’s stability and growth pact.

But they warned that member states must recommit to “sound public finances” and cut public debt that surged during the Covid-19 crisis.

The eight ministers sent a clear signal to the European Commission to restart negotiations on the rules. When it comes to any changes, “quality is more important than speed.”

After the deficits and debts of member states broke out during the pandemic, the document was an early intervention in the politically controversial debate about whether and how the EU should reform its complex fiscal framework. In response, the EU suspended its usual spending rules last year, giving member states more fiscal firepower to deal with the crisis.

The signatories of the document include some of the most fiscally conservative countries in the European Union. This language reflects their deep doubts about other countries (mainly southern European countries) calling for more lenient fiscal systems.

In their paper, the eight ministers stated that they would like to see the fiscal rules reapply without change after the suspension ends (possibly in early 2023).

“Sustainable public finances create confidence and fiscal space for political priorities and to deal with future crises and challenges,” the paper said. “Reducing the excessive debt ratio is still a common goal.”

Nevertheless, the document reflects the recognition of some countries that it is now inevitable to discuss whether certain aspects of the rules should be reconsidered. The EU’s public debt ratio is expected to rise by 15 percentage points in just two years, reaching 94% of GDP by 2021.

Many capitals are determined to offset any changes in the rules by implementing stricter and more consistent enforcement.

The document was published at the meeting of finance ministers in Slovenia on Friday and Saturday, and informal discussions on the subject are expected at that time.

In view of the destruction of public finances during the crisis and the need for public investment, policymakers including EU Economic Commissioner Paolo Gentiloni (Paolo Gentiloni) have been urging for the “Stability and Growth Pact” (Stability and Growth Pact) Carry out far-reaching legislative reforms.

Ideas proposed by economists and politicians include separating green project investment from deficit constraints.

Eight ministers stated that “SGP should be improved”, but the focus is on simplifying the system to make it more transparent and consistent.

They wrote that it is vital that “the new proposal does not jeopardize the fiscal sustainability of member states, the Eurozone, or the entire Union.”

The document was also supported by the finance ministers of Latvia, Slovakia, Sweden and Finland. Absent are the largest member states of the European Union-Germany, France, Italy and Spain.



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