Carsten Volkery is a Handelsblatt correspondent in Brussels.
(Photo: Klawe Rzeczy)
Politicians and economists largely agree that the EU debt rules need to be reformed. The debate about the Stability and Growth Pact is now taking shape. The Netherlands and Spain submitted a first proposal in the spring, and the federal government followed suit with its paper in the summer. The International Monetary Fund (IMF) also got involved in the discussion on Monday.
What all contributions have in common is that they want to allow more flexibility in reducing debt. In view of the high debt levels in several EU countries after the pandemic, there is no way around this. National characteristics are to be taken more into account so that governments are not forced into excessive austerity that could lead to a recession.
There also seems to be agreement that compliance with the rules must be monitored more strictly. The lack of enforcement by the EU Commission is considered one of the main reasons why states repeatedly violate the Maastricht criteria. These stipulate that the annual new debt may not exceed three percent and the national debt may not exceed 60 percent of the gross domestic product.
In order to make governments more responsible, they should be more involved in formulating medium-term budget plans and debt reduction paths. At the same time, independent control institutions are to be strengthened or newly created. So governments would have more of a say, but at the same time they would be put on a tighter leash.
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These points appear in a similar form in all reform proposals and therefore seem capable of consensus. However, the question of whether a common EU fiscal policy should also be introduced is controversial. IMF economists are proposing a new permanent community fund to invest in greening the economy and energy security.
The economic situation is not that difficult yet
Based on the model of the Corona reconstruction fund, this climate fund is to be financed by joint borrowing. The experts argue that the fund is necessary to ensure the EU’s macroeconomic stability and sufficient investments in public goods.
>> Also read here: Top economist on Lindner’s proposal for a stability pact: “Also realistic for Italy”
Such demands are popular in Italy and France – and among the German Greens. Federal Finance Minister Christian Lindner, on the other hand, strictly rejects it. He always emphasizes that the Corona Fund is a one-time exception. You don’t have to share the FDP’s categorical rejection. In principle, one can consider making such investments together in order not to widen the gap between poor and rich countries in the EU. But there are good reasons not to launch the next fund too quickly.
On the one hand, the economic situation is not yet so bad that this support appears necessary. The southern European countries in particular are showing solid growth due to the tourism boom and are also better positioned than Germany in terms of energy security.
On the other hand, it is not yet possible to assess how the experiment with the Corona reconstruction fund went. In Brussels it is always praised as a great success, but the balance is still to be seen. So far, not even the repayment of this huge mountain of debt has been regulated.
The reform proposal by the EU Commission in mid-October is now being eagerly awaited. Monetary Commissioner Paolo Gentiloni’s officials are tasked with collating the various contributions into a basis for discussion. Only then will the negotiations on the new Stability Pact really get going.
More: IMF calls on the EU to jointly borrow against the energy crisis