Coalition against EU debt rule reform shows cracks

Many of the fiscally conservative states hoped Germany would join their call to implement a rigid EU austerity policy when Christian Lindner of the liberal FDP party took over Germany’s finance ministry. However, the FDP-led ministry has shown it is willing to compromise on reform. EPA-EFE/OLIVIER HOSLET [OLIVIER HOSLET/EPA]

Eight EU countries known as “the alliance of responsibility” who spoke out in favour of an early return to strict debt rules in a position paper in September 2021 are being pushed towards compromise with even Germany adopting a more conciliatory tone. EURACTIV Germany reports.

While these member states, including Austria, Scandinavian member states, the Netherlands, and the Czech Republic, still insist on sound public budgets, there is no longer any talk of an immediate return to the previous, strict rules. Instead, a broad consensus for the need for reforms seems to be emerging.

“We have learned the lessons of past mistakes when we were too quick to restore public finances and destroyed growth in the process,” French Finance Minister Bruno Le Maire said on 18 January during a press conference in Brussels.

“Nobody is asking today that we immediately return to strict budget rules,” he added.

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Germany’s key role

Many states in the fiscally conservative alliance had hoped Germany would join their call to implement a rigid EU austerity policy when Christian Lindner of the liberal FDP party took over Germany’s finance ministry.

However, the FDP-led ministry has shown it is willing to compromise on reform.

For example, at last week’s meeting of EU finance ministers, Lindner stressed that Germany was “open to progress and further development” of the rules.

The finance ministry’s parliamentary state secretary, Katja Hessel, also stressed that the Stability and Growth Pact reform was an “important goal” that “we want to implement together with our neighbours.”

While Hessel said that Germany would continue to advocate for “sound and sustainable” finances at the EU level, she also stressed Germany’s “mediating role” in the debate.

“A reform of the Stability and Growth Pact should also ensure that future investments for the modernisation of the EU can be financed,” Hessel told EURACTIV.

Fiscally conservative member states strike back

Spearheaded by Austria, eight EU member states pushed against the loosening of EU fiscal rules ahead of a meeting of EU finance ministers this weekend.

“Together with other European colleagues we are pleading for a return to a sustainable budgetary policy …

The fiscally conservative

A change of direction also seems to be emerging in the Netherlands, which also joined the fiscally conservative allliance and is often branded as one of the EU’s so-called ‘frugal’ states.

The coalition agreement of the newly elected Dutch government speaks of a “constructive dialogue” that the Dutch want to enter to reform the Growth and Stability Pact. The reform proposals put forward by the EU’s southern member states “in an unbiased and open manner” will be discussed by the new government, a spokesperson told EURACTIV.

Sweden and Denmark are also showing restraint in the debate. “It is important to have a broad debate on this in the EU and to take time to think about how to proceed,” Sweden’s finance ministry has said.

Austria is the only country that currently remains stubborn on the matter. At last week’s meeting of eurozone finance ministers, Austrian Finance Minister Magnus Brunner pleaded for a “return to stricter rules when the crisis is over.

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The road to reform

Because of the pandemic, the EU’s fiscal rules remain suspended.

From 2023, however, the Stability and Growth Pact will apply again, along with its debt rules, which state that government debt may not exceed 60% and the annual deficit may not exceed 3% of economic output.

The EU countries for which the 60%-mark seemed like an unrealistic goal even before the pandemic are now even further from it. Italy’s national debt, for example, has risen to 155% of its gross domestic product (GDP).

The existing debt rules would force Italy to push its debt below the 60%-mark within 20 years. Many other states would also struggle to reach that mark or fail to see sense behind it at a time when government debt can be borrowed at zero interest rates in many areas.

Le Maire, who will lead the negotiations as France holds the EU Council presidency seat, has repeatedly called the debt rules “obsolete”. While such criticism of the debt rules would have caused outrage in many fiscally conservative states in the past, this time, the controversy did not materialise.

“I was surprised by the serenity of our discussion on the Stability and Growth Pact and the convergence of views on this issue,” Le Maire said on 18 January after he held talks with fellow EU finance ministers.

The European Commission will present its proposals for reforming the Stability and Growth Pact in the coming months.

While Lindner expects the debate to only gain momentum from when the proposals are presented, France has already committed to pushing the debate forward.

“Whether an agreement on the reform can still be reached under its Council Presidency remains to be seen,” Hessel told EURACTIV in reference to France.

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[Edited by Alice Taylor]

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