Among other things, the EU Economic Commissioner advocates a reform of the Stability Pact.
(Photo: AP)
Brussels The EU Commission announced on Monday that it would suspend EU debt rules for another year due to the war in Ukraine. The Maastricht criteria should not come into effect again until 2024. This means that the European governments do not have to worry about compliance with the upper limits for the budget deficit (three percent of economic output) and for national debt (60 percent of gross domestic product) for the time being.
In an interview with the Handelsblatt and other European newspapers, EU Economic Commissioner Paolo Gentiloni explains why his authority made this decision – despite concerns in the Federal Government and in the Commission itself.
“Our economies are still far from normal,” said Gentiloni. Although the Commission predicts robust growth in its spring forecast, this is associated with considerable risks.
The EU Economy Commissioner also advocates a reform of the Stability Pact in order to adjust the pace of debt reduction to the circumstances in individual countries.
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Read the full interview here:
Mr. Gentiloni, according to your own spring forecast, the EU economy is expected to grow by 2.7 percent this year. Why is it necessary to suspend EU debt rules any longer??
Without statistical catch-up effects, growth tends to be slightly above zero. If we add the uncertainty about the duration of the Ukraine war, we have a clearer picture of the economic risks. In our forecast we also have two more unfavorable scenarios where growth ends up in negative territory. This leads us to suspend debt rules in the coming year as well.
Is it also because you need more time to debate the future of the Stability and Growth Pact?
It is true that the Stability Pact reform could not be at the top of the heads of government’s list in the last three months – because of the war, the energy prices, the inflation. That is why we are taking our time and are not presenting the Commission’s reform proposal before the summer break, but only afterwards. The fact that the debt rules will also be suspended in the coming year is of course helpful. But there is no connection. The exception rule is extended because it is the best way to deal with the current uncertainty. Our economies are currently still far from normality.
Can you get the reform done by the end of 2023 before the debt rules come back into effect?
The length of the process will also depend on how far-reaching the legislative changes will be. They must also be debated in the European Parliament.
How far-reaching should the reform be?
There are some principles that are now recognized as important. First, we must strike a balance between the importance of realistic deleveraging and the huge investment needs of our economies. Second, we need simpler rules that are more enforceable. And third, we need to discuss how we can keep one set of rules while at the same time differentiating the goals and path of deleveraging by country. We have a situation where national debt ratios in the EU range from 20 to 200 percent. Do we have to have the same path for a 70 percent country and a 190 percent country? Or can we have differentiated plans? A model could be the Corona recovery fund, where Member States and the Commission draw up investment plans together. If we give states more say, enforcing the rules will also be easier.
>> Read more: If necessary, suspend the debt brake and reform the taxes – this is what the IMF and the EU are demanding of Germany
What could the differentiation look like?
For example, there is the 1/20 rule, which stipulates that a country must reduce its debt to the Maastricht ceiling of 60 percent within twenty years. This is very difficult to implement for highly indebted countries. We need a different approach.
Should there be an exception rule for “green investments” by the state?
We need to discuss how to push green and other strategic investments. This can be a golden rule or something else to positively influence the composition of government spending. The golden rule is not the only way.
More: EU Commission suspends debt rules for another year – criticism from Berlin