Friday

8th Dec 2023

EU re-launches mammoth fiscal debates

  • European economy commissioner Paolo Gentiloni told press he expected the debates to start next year. (Photo: European Commission)
Listen to article

The European Commission has reignited its effort to overhaul the way the EU governs its economy.

Commission president Ursula von der Leyen first launched the effort in 2019, but it was suspended due to the pandemic.

Read and decide

Join EUobserver today

Become an expert on Europe

Get instant access to all articles — and 20 years of archives. 14-day free trial.

... or subscribe as a group

The new rules should achieve at least two goals: reducing public debt throughout the union and allowing investment in green and digital technologies that amount up to €650bn annually, economy commissioner Paolo Gentiloni told press on Tuesday (19 October).

"We need economic governance rules that can tackle those challenges head-on," trade commissioner Valdis Dombrovskis added.

While the commission takes the initiative, most of the political weight lies with the member states, who will debate the rules next year - a process that is expected to last until the later part of 2022.

Particular attention will be paid to the 'Stability and Growth Pact' - a budgetary rule prohibiting countries from running a deficit upwards of three percent and limits the debt to GDP-ratio to 60 percent.

So-called frugal countries - The Netherlands, the Nordic countries, the Baltics and Austria - prefer a return to a similar rules-based system that caps debt and deficit to a specific ratio.

More indebted countries generally want more individual investment flexibility to "grow their way out of debt", as the Italian prime minister Mario Draghi described it recently.

In the past, this difference in views has led to bitter disagreements between the two camps, with breakthroughs only being forced through by the collective political weight of Germany and France, whose position in the upcoming debates remains unclear due to coalition talks and upcoming presidential elections, respectively.

The commission, meanwhile will act as a sort of referee.

Trust?

To guide the debates and foster "consensus" the commission ended the communique with 11 open questions and invited stakeholders to send in ideas before December 2021.

Questions featured were: "How can one simplify the framework?" and "how can the framework be improved to ensure sustainable public finances in all member states?".

"It is our role to provide orientation; we have an open mind," a commission representative told press.

But some critics felt the questions were too vague to make a difference.

"Ending communication with 11 super-open questions is a particularly skilful way of telling people that you have really no intention to meaningfully structure a debate. Which bears the question of why to publish something at all," Lucas Guttenberg of the Delors Centre, a think-tank based in Berlin, tweeted.

When pressed about its non-committal attitude, a representative reflected on the commission's strategy by saying that the goal to simplify the rules "is intrinsically linked" to the issue of trust, implying that simpler rules inherently create more flexibility - or room for interpretation.

"Why is it that rules have become so complex? That has a lot to do with trying to regulate all the unknowns - and that tells you something about the level of trust between member states," he said.

"If the previous crisis has thought us one thing, it is that things will always be different than we expect them to be," he added, expressing hope that "there may be less of a need to try to regulate everything to the last comma."

Meanwhile, Gentiloni said he expected the debates will revolve around the "pace of the debt reduction" and not the debt ratio compared to GDP.

Current EU rules prescribe that indebted economies reduce debt higher than 60 percent of GDP by 1/20th a year.

Italy has a debt to GDP ratio of 160 percent, which in practice means it has to reduce debt by an unattainable five percent a year.

"Debt reductions is an important goal," Gentiloni said, adding: "but we have to make sure they are compatible with reality."

'Frugals' renew effort to reduce excessive debt

Finance ministers of eight EU member states released a signed letter calling for a renewed effort to "reduce excessive debt" among member states. It is the starting point for renewed debates on debt and deficits in Europe.

EU's Mr Austerity: No need to change debt ceiling

Austrian official and fiscal hawk Alfred Katterl has said the EU's 'stability and growth pact' on national debt-limits should remain sacrosanct, but some economists disagree.

Interview

An economist on 'elephant-in-room' at German election

Economist Shahin Vallée says Germany has the resposability to lead the European debate on fiscal reforms in the face of the climate crisis. If they don't take up the mantle, the EU will continue failing during further crises.

Column

Hawks to doves? Germany's new generation of economists

For many Europeans, Angela Merkel's change looked sudden. But the groundwork started two years ago. Germany slowly ripened for the Merkel-Macron plan. This explains why it didn't meet massive public resistance in Germany.

EU Commission extends borrowing curbs in 2023

The European Commission on Monday proposed to extend suspension of fiscal borrowing rule in 2023 — but advised prudence amid already rising real interest rates.

Spain's Nadia Calviño backed to be EIB's first female chief

With less than a month to go before the start of a new leadership of the European Investment Bank, the world's largest multilateral lender, the path seems finally clear for one of the candidates, Spanish finance minister Nadia Calviño.

Analysis

Is there hope for the EU and eurozone?

While some strengths may have been overlooked recently, leading to a more pessimistic outlook on the EU and the euro area than the truly deserve, are there reasons for optimism?

Latest News

  1. EU suggests visa-bans on Israeli settlers, following US example
  2. EU ministers prepare for all-night fiscal debate
  3. Spain's Nadia Calviño backed to be EIB's first female chief
  4. Is there hope for the EU and eurozone?
  5. Crunch talks seek breakthrough on EU asylum overhaul
  6. Polish truck protest at Ukraine border disrupts war supplies
  7. 'Green' banks lend most to polluters, reveals ECB
  8. Tense EU-China summit showdown unlikely to bear fruit

Stakeholders' Highlights

  1. Nordic Council of MinistersArtist Jessie Kleemann at Nordic pavilion during UN climate summit COP28
  2. Nordic Council of MinistersCOP28: Gathering Nordic and global experts to put food and health on the agenda
  3. Friedrich Naumann FoundationPoems of Liberty – Call for Submission “Human Rights in Inhume War”: 250€ honorary fee for selected poems
  4. World BankWorld Bank report: How to create a future where the rewards of technology benefit all levels of society?
  5. Georgia Ministry of Foreign AffairsThis autumn Europalia arts festival is all about GEORGIA!
  6. UNOPSFostering health system resilience in fragile and conflict-affected countries

Stakeholders' Highlights

  1. European Citizen's InitiativeThe European Commission launches the ‘ImagineEU’ competition for secondary school students in the EU.
  2. Nordic Council of MinistersThe Nordic Region is stepping up its efforts to reduce food waste
  3. UNOPSUNOPS begins works under EU-funded project to repair schools in Ukraine
  4. Georgia Ministry of Foreign AffairsGeorgia effectively prevents sanctions evasion against Russia – confirm EU, UK, USA
  5. Nordic Council of MinistersGlobal interest in the new Nordic Nutrition Recommendations – here are the speakers for the launch
  6. Nordic Council of Ministers20 June: Launch of the new Nordic Nutrition Recommendations

Join EUobserver

Support quality EU news

Join us