Vice Chancellor Sigmar Gabriel said on Monday (16 June) he was open to debate on giving EU countries more time and flexibility to meet the bloc’s deficit targets, as long as they are committed to reforms.
Two German government spokespeople clarified Gabriel was not casting doubt on the EU’s fiscal rules – the Stability and Growth Pact – but pointing to already existing exceptions.
“No one can accept deficits at the level they are now, but to overcome deficits we need growth, we need jobs,” Gabriel told reporters during a visit to the southern French city of Toulouse with his French counterpart, Socialist Arnaud Montebourg.
“One of the solutions could be the following: the costs linked to reform policies would not be taken into account to calculate the deficit,” Gabriel said. He was speaking in German via an interpreter translating into French.
“Those who are determined to carry out these reforms, we would give them more time to do the reforms and then comply with deficit criteria,” he said, without specifying which reform costs would be taken out off the calculation of the deficit.
Under EU rules, governments must keep their public deficit below 3% of gross domestic product. The EU has given France until 2015 to get its deficit, which stood just over four percent of output in 2013, below that three percent level.
Wider debate on EU priorities
“Nobody in the federal government is calling into question the Stability and Growth Pact. The existing rules offer enough flexibility to enable growth-friendly consolidation,” a German finance ministry spokeswoman said in an emailed statement.
“Those countries implementing wide-ranging structural reforms in order to boost their growth sustainably are already given more time to reduce their deficits,” she added.
Gabriel is a member of the left-leaning Social Democratic (SPD) party in a grand coalition with Chancellor Angela Merkel’s conservative Christian Democrats (CDU).
Merkel party ally and Finance Minister Wolfgang Schäuble is the lead minister on public finance matters and has insisted on the need to respect EU rules.
Gabriel added that discussion of possible flexibility would be part of the wider debate on the EU’s priorities and policies for the next five years after Eurosceptic parties made gains in European Parliament elections last month.
The International Monetary Fund urged the European Union last week to simplify fiscal rules and focus on cutting debt.
The head of the IMF’s European department, Reza Moghadam, said focusing mainly on debt would give EU governments the flexibility they need to keep their economies growing, while retaining the confidence of markets and making the rules easier to explain to citizens.
The European Union has already switched its focus to structural deficits – which strip out the effect of the economic cycle – rather than the nominal deficit
The European Commission signalled on 3 May 2013 that the bleak economic outlook allowed some scope for slowing the pace of austerity in the eurozone.
France, Spain and the Netherlands were all given leeway to meet their budget deficit reduction targets as a result.
In exchange, countries are expected to table structural reform plans to reduce their deficits in the long term.