Sunday

10th Dec 2023

EU finance ministers meet for tough clash on spending rules

  • EU Commission president Ursula von der Leyen (centre) and ECB president Christine Lagarde meeting with Eurogroup president Paschal Donohoe (Photo: European Commission)
Listen to article

EU finance ministers meeting in a venue outside Stockholm this week are expected to clash over new spending rules.

So-called 'frugal' countries, led by Germany, will be pitted against indebted countries, led by France and Italy, that would have to cut spending under the proposal.

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

On Wednesday, the EU Commission proposed a document that included tougher benchmarks for debt reduction and fines — which was perceived as a concession to Berlin.

However, German finance minister Christian Lindner criticised the rules in a press release, insisting on even harder benchmarks.

Central bank governors will join finance ministers over the weekend to coordinate support for Ukraine's reconstruction and also include sessions on supporting growth in the EU.

The new spending rules are relevant for ECB president Christine Lagarde due to the recently-introduced Transmission Protection Instrument. This allows the central bank to buy up government bonds if individual countries face unsustainable borrowing costs on the capital markets. But to qualify a country has to acquiesce to EU fiscal rules.

Even though the commission has sought a middle ground, talks are not expected to go smoothly. Lindner, in a statement, indicated he would "work constructively, but no one should be under the misunderstanding that Germany will automatically consent to the proposals."

One EU diplomat representing a frugal country previously told EUobserver: "But this is only the start of a very technical phase of the legal negotiations. So I think it's safe to say it will take some time to hammer out a deal. The Germans are staking out a challenging negotiating position, which is pretty good for us as it moves the needle slightly more to where we want it."

Negotiations are expected to last into next year.

Not green enough

A loose coalition of green legislators, economists and NGOs have sounded the alarm, warning that the proposal does not leave enough fiscal space for countries to achieve their climate and social targets. "We are dismayed. Nothing guarantees that the fiscal room generated by this reform will be used for investments in climate action," said Isabelle Brachet, fiscal reform policy expert at Brussels-based NGO CAN Europe.

Debt pathways under the current proposal will result from negotiations between individual member states and the commission and must be signed off by the Council of member states. Crucially they will be based on so-called "debt sustainability analysis."

But the bloc's 'do no significant harm' principle does not apply to the debt-reduction plans, leading Brussels-based think tank ZOE Institute for Future-fit Economies to conclude that "there is a lack of safeguards to ensure" that none of the fiscal plans "do any harm to environmental or social objectives."

"A successful green and just transition will only be achieved with major public funding — however, the new fiscal rules proposed still don't provide enough incentives for investments in climate action and social policy," said executive director Jakob Hafele.

As a solution, the think tank suggests debt incurred by green investments should be granted more leeway, by extending the debt reduction path.

The "obsession with debt-to-GDP ratios" is "unhelpful," Philippa-Sigl-Glöckner and Max Krahé from German think tank Dezernaz Zukunft wrote in a syndicated op-ed on Wednesday.

"Policymakers should focus more on relevant macroeconomic indicators like the primary fiscal balance (which excludes debt service), as well as more meaningful indicators of long-term prosperity, such as the zero-carbon readiness of the bloc's assets," the researchers added.

"This proposal will by a large margin fail to give governments sufficient space to increase climate investment," political economist Philipp Heimberger wrote in an in-depth analysis of EU fiscal rules he wrote on behalf of the EU Parliament.

'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.

Looser EU fiscal rules agreed, with 'country-specific' flexibility

EU finance ministers agreed on new spending rules, copying much of previously existing rules. One worry is that only three countries — Sweden, Denmark and Luxembourg — could currently afford to meet green commitments while meeting debt and deficit rules.

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.

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. How Moldova is trying to control tuberculosis
  2. Many problems to solve in Dubai — honesty about them is good
  3. Sudanese fleeing violence find no haven in Egypt or EU
  4. How should EU reform the humanitarian aid system?
  5. EU suggests visa-bans on Israeli settlers, following US example
  6. EU ministers prepare for all-night fiscal debate
  7. Spain's Nadia Calviño backed to be EIB's first female chief
  8. Is there hope for the EU and eurozone?

Stakeholders' Highlights

  1. Nordic Council of MinistersJoin the Nordic Food Systems Takeover at COP28
  2. Nordic Council of MinistersHow women and men are affected differently by climate policy
  3. Nordic Council of MinistersArtist Jessie Kleemann at Nordic pavilion during UN climate summit COP28
  4. Nordic Council of MinistersCOP28: Gathering Nordic and global experts to put food and health on the agenda
  5. Friedrich Naumann FoundationPoems of Liberty – Call for Submission “Human Rights in Inhume War”: 250€ honorary fee for selected poems
  6. World BankWorld Bank report: How to create a future where the rewards of technology benefit all levels of society?

Stakeholders' Highlights

  1. Georgia Ministry of Foreign AffairsThis autumn Europalia arts festival is all about GEORGIA!
  2. UNOPSFostering health system resilience in fragile and conflict-affected countries
  3. European Citizen's InitiativeThe European Commission launches the ‘ImagineEU’ competition for secondary school students in the EU.
  4. Nordic Council of MinistersThe Nordic Region is stepping up its efforts to reduce food waste
  5. UNOPSUNOPS begins works under EU-funded project to repair schools in Ukraine
  6. Georgia Ministry of Foreign AffairsGeorgia effectively prevents sanctions evasion against Russia – confirm EU, UK, USA

Join EUobserver

Support quality EU news

Join us