Spain and the Netherlands want to replace rigid medium-term deficit targets with a “simple spending rule”.
(Photo: dpa)
Brussels In the debate about new EU debt rules, a first compromise is emerging. Spain and the Netherlands presented a joint reform paper on Monday that aims to settle the traditional conflict between northern and southern countries.
Accordingly, rigid medium-term deficit targets are to be replaced by a “simple expenditure rule”. Investments for the green and digital restructuring of the economy should be given special consideration in the future, and governments should be given more responsibility for implementation. At the same time, independent institutions in the member states are to be given a greater say in controlling budgetary rules.
The move is particularly notable because the Netherlands and Spain usually find themselves in opposite camps on budgetary issues. Madrid has traditionally advocated more flexible guidelines, while The Hague is one of the hardliners.
The unusual alliance initially seems to be due to the change in personnel in the Netherlands: the left-liberal Finance Minister Sigrid Kaag is taking a new course. At the same time, however, it shows that a new sense of reality is spreading across Europe.
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Since the corona pandemic, the EU’s Stability and Growth Pact has seemed increasingly obsolete. Most countries are not complying with the Maastricht criteria, which allow a maximum national debt of 60 percent of economic output and a maximum deficit of three percent.
In 2020, the EU abolished the debt rules
Six EU countries have a national debt of more than 100 percent. According to the EU forecast, Germany will be at 69 percent this year. Due to the Ukraine war, huge new expenses are added. Governments help themselves with tricks – as recently Chancellor Olaf Scholz with the “Bundeswehr Special Fund”.
The EU Commission had therefore temporarily suspended the debt rules in 2020 and most recently indicated that this state of emergency would be extended until next year.
However, there is increasing recognition in Brussels and the capitals that the debt rules must be fundamentally reformed in order to remain credible. With the joint paper one wants to lay a basis for a consensus, explained the Spanish Finance Minister Nadia Calvino on Monday at the Eurogroup meeting in Luxembourg.
Because of the Ukraine war, however, the Spanish-Dutch advance was completely lost. The finance ministers’ discussions focused primarily on further sanctions against Russia; there was no time for anything else. The timing of the paper was “a bit strange,” admitted Dutchwoman Kaag.
Nevertheless, the Maastricht reform debate is of crucial importance for the future of monetary union. It will pick up speed in the coming weeks because the EU Commission intends to present its reform proposals in May.
Calvino is of the opinion that dThe previous rules are too complex and unrealistic – and therefore not enforceable.
(Photo: Reuters)
The starting point of the debt debate is very different than before the pandemic, said Calvino. Not only have national debts risen sharply everywhere. All governments now have massive investment plans. Her verdict: The previous rules are too complex and unrealistic – and therefore not enforceable.
Kaag added that if no one sticks to the rules, one cannot speak of a functioning stability pact. Therefore a reform is necessary. The German Ministry of Finance did not initially assess the Dutch-Spanish initiative. Of course, you look at all the suggestions and ideas, it was only said.
The one-and-a-half-page paper is no more than an impetus for discussion. The common thread is simple: an austerity program is not enough to bring government debt under control in the long term. Rather, economic reforms and public investments are also needed.
The paper is not specific, but according to Politico, the two countries want to overturn the so-called 1/20 rule. This stipulates that a government must reduce the mountain of debt, which is above the permissible limit of 60 percent of economic output, within 20 years. That means a reduction of one twentieth per year.
In view of the current level of debt, this would involve a tough austerity course that would plunge a number of EU countries into recession. The proposed spending rule would be simpler. It could be something like this: Government spending must not grow faster than the potential growth of the economy.
More: High levels of debt: Southern Europe is starting the next crisis weakened.