EU Finance Ministers decide on the first Stabilization Pact compromise – Lindner curbs expectations

Christian Lindner (left) with other EU finance ministers

Shortly before the vote, Lindner still had requests for changes.

(Photo: Bloomberg)

Brussels The EU finance ministers are slowly coming closer to reforming the European debt rules. On Tuesday, they agreed on joint conclusions after Federal Finance Minister Christian Lindner (FDP) pushed through a last-minute change to the text.

The paper provides for some important innovations in the Stability and Growth Pact. The regulations have been suspended since the beginning of the corona pandemic, but are scheduled to come into force again in a reformed form in 2024.

According to the text, the states should in future agree multi-year debt reduction plans with the EU Commission that take into account the different levels of debt in the euro zone. In this way, the ministers want to take account of the sharp rise in debt ratios during the pandemic.

The Maastricht criteria (maximum of three percent of gross domestic product in new debt, maximum of 60 percent of total debt) should continue to apply. However, states should be given more flexibility when it comes to reducing debt.

After the meeting, Lindner dampened expectations for rapid reform. The conclusions are just a first inventory, he said. “There is still a lot of work to be done.”

Lindner does not expect rapid reform

Germany can only agree to a reform once essential technical details have been clarified. From the German point of view, there is still a need for clarification on the question of how the debt sustainability of states is determined.

Berlin wants to ensure that there are no political agreements between the Commission and individual member states when drawing up national debt reduction plans. That is why Lindner calls for common, comprehensible criteria that the commission must adhere to.

The Commission is expected to present a legislative proposal in April, which should reflect the conclusions of finance ministers. Lindner has now managed to get the Commission to collect proposals from the Member States and take objections into account.

The German finance minister surprised his colleagues on Monday by calling for a text change. The draft had already been approved by the group of EU ambassadors, and Germany had also agreed. This usually means that the ministers just nod the text. But last week the FDP leader was so annoyed with the EU Commission that he now wanted to add a passage to the text.

The reason for Lindner’s intervention: EU Economics Commissioner Paolo Gentiloni had stated when presenting the budgetary policy recommendations for 2024 that the Commission already wanted to evaluate the fiscal plans of the member states based on the new debt rules.

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Lindner immediately described the Commission’s arbitrary action as “unacceptable”, after all the new rules have not even been decided in principle. On Monday he followed up: The Brussels authorities “do not work in a legal vacuum”. As long as you don’t agree on new rules, the old rules will continue to apply.

Parallels to the debate about phasing out combustion engines

Apparently, Gentiloni’s foray into action reminded Lindner of the debate about phasing out combustion engines. Here, too, the FDP felt deceived by the commission – or at least ignored. According to their own account, Lindner and Transport Minister Volker Wissing have always insisted that e-fuels must also be allowed after 2035.

However, after the EU Commission made no move to implement the German demand, the liberals finally opposed it and blocked the EU climate law. In the meantime, several EU countries have joined the German position on the combustion engine exit.

At the finance ministers’ meeting, other Lindner colleagues also jumped in and criticized the Commission’s go-it-yourself approach to the debt rules. Gentiloni felt compelled to appease: it was a misunderstanding.

On Tuesday, however, Vice President Valdis Dombrovskis repeated that the authority wanted to “build a bridge” to the planned new rules when assessing the 2024 budget. However, this is “consistent” with the existing debt rules, he assured.

Dombrovskis also promised that the Commission would work closely with member states to formulate its proposed legislation. At the same time he warned that time was of the essence. The aim is to have the legislative process in the Council completed by the end of the year. “We have to move quickly,” he said.

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