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13th Aug 2022

Negotiators finalise broad outline of EU fiscal treaty

  • (Photo: Images_of_Money)

Negotiators from 26 member states have reached broad agreement on the new fiscal treaty, paving the way for a formal agreement by EU leaders at the end of the month.

EUobserver understands that the role of the European Commission will be kept as stated in the latest draft - it is to have "reporting" powers rather than being able to take deficit sinners to court over failure to enshrine a "golden rule" on balanced budgets in their constitution or other long-term-binding legislation.

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A previous draft put forward earlier this month had said the commission could take countries to the European Court of Justice "on behalf" of other members.

But this was deemed "inconsistent with the treaties", one source told this website.

Ideally, EU leaders could sign the new treaty at a summit at the end of January - a development called for by European Central Bank chief Mario Draghi on Thursday.

"It would be highly welcomed if the fiscal compact was signed by the end of January rather than March as currently envisaged," he said in a press conference in Frankfurt.

The outstanding issues are to be ironed out by a final session of the treaty working group and a follow-up meeting by finance ministers in the run-up to the summit.

But translation into all the signatories' national languages is likely to delay the signature until March - as originally planned - enabling leaders to announce a political agreement only at the January summit.

Questions remain over the effectiveness of the intergovernmental treaty, which is designed to be included in EU law in the next five years if the UK drops its veto.

The new treaty is to impose automatic sanctions for countries which breach rules requiring budget deficits to be kept below 3 percent of GDP and debt levels below 60 percent of GDP, as well as keeping a "structural deficit" below 0.5 percent.

One of the outstanding issues is the precise method of calculating this "structural deficit". Denmark, for instance, whose welfare state constantly runs a budget deficit, has a problem with the EU commission algorithm.

"The structural deficit is not something real, it is a sum, so it is important to know how you calculate it. We would like to adhere to the norm 'comply or explain' rather than adopting the EU commission method," Danish economy minister Margrethe Vestager told journalists on Tuesday in Copenhagen.

Softer draft of fiscal treaty opens door for UK

Less stringent constitutional demands, a weaker role for the EU commission and a provision allowing the UK to join at a later stage are among the most recent changes to the draft treaty on fiscal discipline.

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