With a faint hope for a final agreement on the reform of the Stability and Growth Pact, the EU finance ministers are meeting tonight Thursday in Brussels at 8 pm (Greece time) at a dinner dedicated to this purpose, but also tomorrow, December 8, at the Ecofin Council.

Tonight’s dinner has been convened by the Spanish Presidency of the Council of the EU, in a last ditch effort to find the necessary political balance before tomorrow’s Ecofin. With positions between countries diverging on several aspects of reform, the negotiation is expected to be “difficult” and “complex”. European diplomats describe the need to reach an agreement before the end of the year as “urgent”. The time frame is tight, as any deal will then have to be negotiated with the European Parliament before the end of the legislative period in April 2024, in order for the new rules to come into force in 2024. Otherwise, from 1 January 2024 we will have to go back to the old fiscal rules which are now considered obsolete.

The basis of the negotiation is the Commission’s proposal filed in April 2023, which foresees a defined fiscal trajectory for each country individually, taking into account debt sustainability, through four-year adjustment plans (with the possibility of extending them to seven years, in exchange for reforms and investments). From April until today, however, the compromise proposals of the Spanish Presidency have taken steps towards the countries that want a stricter fiscal course and supervision.

In today’s negotiation the EU countries they come divided. On the one hand, Germany, which has hardened its stance, due to its internal problems, along with Austria, the Netherlands and other “thrifty” countries of the North, they are calling for stricter fiscal rules than the Commission’s original proposal. On the other hand, a group of countries to which Greece, France and Italy also belong, are asking for sufficient room for maneuver to carry out the necessary investments and reforms.

Some of the “obstacles” of the negotiation, as far as the “precautionary” part of the Stability Pact is concerned, are the floor guarantees for debt and deficit reduction. The Spanish Presidency is proposing what Berlin is asking for, i.e. debt reduction by 1% of GDP annually for countries with debt greater than 90% and by 0.5% of GDP for countries with debt 90%-60% of GDP. The timing of the activation of this safeguard is under discussion. As regards the deficit, in case of exceeding 3% of GDP, it is proposed to ensure a reduction of 0.5% per year. The deficit will then need to be reduced to 1.5% of GDP, with the percentage of the annual correction being negotiated.

In the “corrective” part, the most thorny issue is the proposal of the Spanish Presidency for a Commission “control” mechanism, which will monitor countries’ deviations from the defined course of fiscal expenditures. When a member state’s deviations exceed the targets, the Commission will submit a report that could lead to the opening of an excessive deficit procedure and then sanctions and fines for countries that break the new fiscal rules.

Among the positives of the Spanish Presidency’s proposals is that under exceptional macroeconomic conditions, either at EU level or only in one Member State, the general escape clause will be able to be activated which will allow deviation from the rules of the new Pact.