New investment clause fails to win EU member state support

Italy's new minister of Economy, Roberto Gualtieri, is one of the big defenders of the inclusion of a 'golden rule' in the EU's fiscal rules to attract more national spending. [© European Union 2019 - Source : EP]

EU member states remain split over a possible relaxation of the bloc’s fiscal rules meant to facilitate investment in the bloc, despite calls from the European Central Bank and some governments to increase public spending and mitigate the risk of recession.

In a recent report, the European Fiscal Board recommended including a ‘golden rule’ in the Stability and Growth Pact. This clause would exclude member states’ additional expenditure on EU projects co-financed by them when assessing national expenditure against spending limits.

“More attention to stimulating growth-enhancing spending is warranted by the likely persistence of a low-interest-rate environment as well as by the increasingly specific nature of EU investment initiatives,” the Board’s chair, Niels Thygesen, wrote in the report.

The seven-point recipe to improve EU's messy fiscal rules

The European Fiscal Board has recommended major reform of the Stability and Growth Pact in order to simplify the EU’s spending rules and favour productive investment in the era of low-interest rates.

The Commission already introduced an investment clause in early 2015 to facilitate investment and fuel economic recovery.

The proposal is part of the review of the so-called two-pact and six-pact, building blocks of the EU’s fiscal framework that the Commission is mandated to do by the end of this year.

The EU’s fiscal board also proposed to simplify the implementation of the pact by focusing on debt sustainability and introducing an expenditure ceiling to control it.

The reform of the Pact was discussed by EU finance ministers last Saturday (14 September), during their informal meeting in Helsinki.

Draghi urges Germany, Netherlands to invest against risk of recession

The European Central Bank said on Thursday (12 September) it will reactivate its bond-buying programme, stepping up the monetary stimulus to maintain economic growth, but its president Mario Draghi told Germany and the Netherlands the time has come to spend more in order to avoid the risk of a downturn.

The debate to ease the constrains to facilitate public investment came after ECB President Mario Draghi told governments with healthy economies to open their wallets, especially Germany and the Netherlands.

The Dutch government unveiled on Tuesday extra spending across the board for next year’s budget to stimulate its economy.

Berlin has been dragging its feet but has said it is also ready to pour billions of euros in its economy if the situation worsens.

Europeans tell Germany to spend more to boost euro economy

European ministers and institutions told Germany on Monday (8 July) to increase public spending in order to support the ailing growth in the eurozone, as decision-makers and investors see a growing risk of recession looming on the horizon.

However, only a small group of countries are in favour of introducing a ‘golden rule’ to take advantage of the low interests and invest in the green economy or the digital transformation.

“There is no clear majority supporting it,” said an EU official. Not even a partial solution to exclude only certain type of investments is gathering enough support.


Spain, Portugal and Italy are among the most enthusiastic supporters of the inclusion of this clause.

Italy’s new pro-European government has been the most vocal defender of the ‘golden rule’.

The Italian minister of economy, Roberto Gualtieri, said Rome supported a “Green New Deal”. “In this context, the portion of domestic financing … should be excluded from structural deficit calculations,” he said ahead of the Ecofin meeting.

An official of the Spanish economy ministry, however, lowered the expectations of any meaningful reform of the Pact in this sense, as member states are deeply divided.

“It will be very difficult, also in regard to the ‘golden rule,” the official said.

Countries are split over whether to reform the EU’s fiscal rules, and if the changes should be made for introducing more automatism to discipline countries that breach the spending rules, or to facilitate investment.

Some countries, including the Netherlands, argued that the major problem is not the rules but their poor implementation.

Italy escapes EU budget sanction procedure after spending cuts

The European Commission concluded on Wednesday (3 July) that Italy was no longer breaching the EU’s fiscal rules after the government reduced public spending by €7.6 billion in a last-minute effort to escape a sanction procedure.

Other countries have a more nuanced position. France wants more investment in the current context to ensure that the European economy continues growing but is wary of embarking on an exhausting discussion to review the Pact that could lead to nowhere.

“I am very cautious on ideas to change the rules,” French Finance Minister Bruno Le Maire said in Helsinki.

A reform would be “very difficult, very long, and very uncertain,” he added.

Commission vice president for the euro, Valdis Dombrovkis, said a review of the EU’s fiscal rules would only take place if an agreement seemed possible.

“We should avoid the scenario where we just open legislation without knowing how we’ll close it and then have a long and divisive debate on this and not achieve results,” he said.

Italy’s Gualtieri played down the lack of support among his fellow ministers.

“We are in a preliminary phase of reflection… It was an informal discussion,” Gualtieri told reporters in Helsinki, AFP reported.

[Edited by Zoran Radosavljevic]

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