“Cracks” in the pro-austerity coalition in the EU – The role of Berlin
The eight EU countries, known as the “liability alliance”, which favored an early return to strict debt rules in a position paper in September 2021, are now being pushed into a compromise. Even Germany is adopting a more conciliatory tone according to Germany EURACTIV.
While these Member States, including Austria, the Nordic countries, the Netherlands and the Czech Republic, still insist on sound public budgets, there is no longer any immediate return to the previous, strict rules. On the contrary, there seems to be a broad consensus on the need for reform.
“We have learned a lesson from the mistakes of the past, when we were in a hurry to restore the public economy and ruined the growth process,” French Finance Minister Bourinho Le Mer said at a news conference in Brussels on January 18.
“No one is asking us today to return immediately to strict fiscal rules,” he added.
The key role of Germany
Many members of the fiscal conservative alliance hoped that Germany would join their call for strict EU austerity when
Christian Lindner of the liberal FDP party took over the German finance ministry.
However, the FDP-led ministry has indicated it is willing to compromise on reforms.
For example, at a meeting of EU finance ministers last week, Lindner stressed that Germany was “open to progress and further development of the rules”.
Parliamentary Undersecretary of State for Finance Katia Hessel also stressed that the reform of the Stability and Growth Pact is an “important goal that we want to achieve together with our neighbors”.
While Hessel said Germany would continue to support “sound and sustainable” budgets at 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 in EU modernization can be financed,” Hessel told EURACTIV.
The Netherlands is changing direction
The Netherlands, which has also joined the fiscally conservative alliance and is often described as one of the so-called “simple” EU countries, also seems to be moving in the opposite direction.
The coalition agreement of the newly elected Dutch government speaks of a “constructive dialogue” that the Dutch want to enter into for the reform of the Growth and Stability Pact. The reform proposals submitted by the southern EU Member States “in an impartial and open manner” will be discussed by the new government.
Sweden and Denmark are also showing restraint in the debate. “It is important that there is a broad debate on this issue in the EU and that we take the time to think about how to proceed,” said the Swedish Finance Ministry.
Austria is the only country that remains persistent on the issue. At a meeting of eurozone finance ministers last week, Austrian Finance Minister Magnus Bruner called for “a return to stricter rules when the crisis is over.”
The road to reform
Due to the pandemic, EU fiscal rules remain suspended.
From 2023, however, the Stability and Growth Pact will come into force again, along with its debt rules, which state that public debt can not exceed 60% and the annual deficit can not exceed 3%. of economic production.
EU countries for which the 60% threshold seemed an unrealistic target even before the pandemic are now even further away. Italy’s public debt, for example, has reached 155% of its gross domestic product (GDP).
Existing debt rules would force Italy to push its debt below 60% within 20 years. Many other states would also find it difficult to reach this limit or not see the point behind it, at a time when public debt can be borrowed at zero interest rates in many sectors.
Le Merre, who will lead the negotiations over France’s presidency of the EU Council, has repeatedly called the debt rules “obsolete”. While such a critique of debt rules would have angered many fiscally conservative states in the past, this time it did not provoke tensions.
“I was surprised by the calmness of our discussion of the Stability and Growth Pact and the convergence of views on this issue,” he said on January 18 after talks with his fellow EU finance ministers.
The European Commission will present its proposals for the reform of the Stability and Growth Pact in the coming months.
While Lindner expects the debate to gain momentum only once the proposals are presented, France is already committed to moving the debate forward.
“Whether an agreement on reform can still be reached under its Council presidency remains to be seen,” Hessel told EURACTIV, citing France.
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