EU ministers want bloc’s fiscal rules to support investment and realistic debt cuts
European Commission Vice-President Valdis Dombrovskis gives a press conference with Commissioner Nicolas Schmit on the communication on a new strategic framework for occupational safety and health in Brussels, Belgium, June 28, 2021. [Johanna Geron/Reuters]
European Union finance ministers said on Friday that changes to the EU’s fiscal rules, currently under review, should support investment in the post-pandemic economy and allow a more realistic path to reduce huge public debts of some countries.
Finance ministers from the 27-country bloc begin discussions at a two-day summit in the Slovenian town of Brdo on how to change the rules to better adapt them to new economic realities once they are restored from from 2023.
“We will need a debt reduction trajectory that is realistic for all member states. We need to strike a balance between fiscal sustainability and the need to support economic recovery, ”European Commission Vice-President Valdis said entering the talks.
The rules, which set limits on European government borrowing to protect the value of the euro, are suspended until the end of 2022 to give member states more leeway to tackle the economic slump caused by the coronavirus pandemic .
Discussions about changing them are expected to last for a good part of next year, but some common themes are already emerging, such as the need to protect public investment, which is usually the first victim of any spending cuts during crises.
“We have to avoid what happened in the previous crisis when public investments reached zero year after year”, said European Economic Commissioner Paolo Gentiloni arriving at the meeting.
“This cannot happen in the next few years and it is also the reason why tomorrow we will have a discussion on the budgetary rules related to investments,” he said, adding that reaching a consensus on the changes would be “a big effort”.
“Green” investments, aimed at reducing Europe’s net CO2 emissions to zero by 2050, should receive special treatment, some argue, and even be exempt from deficit calculations. ‘EU. French Finance Minister Bruno le Maire said on entering the talks that it was an idea worth discussing.
Discussions over EU fiscal rules are politically sensitive due to the lack of trust between the traditionally more budget-frugal northern EU countries and what they see as more debauched southern nations, a gap exacerbated by the sovereign debt crisis of 2010-2015.
The more budget-frugal fear that others will take advantage of any exemption from deficit calculations and graft onto those that are more stringent on spending, especially since the criteria for what constitutes “green” spending could be difficult to define.
Currently, the rules state that governments should not run budget deficits above 3% of GDP and should keep debt below 60% of GDP. If the debt is higher, it should be reduced each year by 1 / 20th of the excess over the 60% limit.
But some countries, like Italy, have a debt of 160% of national production, which makes an annual reduction of 5 percentage points unrealistic, especially if the country has to invest heavily to make its economy “green” and more digitized. .
Olaf Scholz, who could become the first center-left chancellor of Europe’s economic powerhouse Germany for 16 years if his party wins national elections on September 26 as polls suggest, has shown little appetite for a big reform.
While the fiscal rules were flexible enough to allow massive spending during the Covid-19 crisis, they were also designed to ensure that public money is spent prudently, said Scholz, who is currently German finance minister.
“The two aspects together are the right path for the center I am committed to,” Scholz told reporters.
EU finance ministers from the Netherlands, Finland, Sweden, Slovakia, Czech Republic, Austria, Denmark and Latvia, traditionally representing a more frugal approach to public spending, expressed support careful with changing the rules.
“We are open to a debate on improving economic and fiscal governance, including the Stability and Growth Pact. While sticking to a rules-based fiscal framework, improvements should be made, ”they wrote in a joint letter.