Tuesday

27th Feb 2024

EU ministers prepare for all-night fiscal debate

  • French finance minister Bruno Le Maire (centre) and his German counterpart Christian Lindner have met six times in recent months to hammer out an agreement (Photo: Council of the European Union)
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EU finance ministers are set to discuss debt and spending rules over dinner on Thursday evening (7 December), in what officials say may turn into an all-nighter.

"When I hear the word 'dinner' I always think it is to have a nice conversation, but the Spanish presidency intends to keep it going for as long as it takes," one EU diplomat told EUobserver, requesting anonymity.

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The rules governing the bloc's spending and debt, known as the Stability and Growth Pact, were suspended in 2020. The rules were up for renegotiation anyway because they were deemed ineffective, too complex, and too strict.

Since last year, EU countries have tried to develop a new set of rules that are supposed to be easier to implement.

Before the summer, the EU Commission proposed a draft that would allow countries some flexibility to reduce deficits and debt based on national spending plans.

The new rules were meant to reduce debt effectively and allow for investment in green and digital technologies that amounted to €650bn annually.

The thinking went that by allowing countries four years to get debt on a downward slope and bring deficits below three percent of GDP rule, highly-indebted countries would not be penalised too heavily.

The four-year period could finally be extended to seven years in exceptional cases.

However, deep disagreements between member states have prevented the file from moving forward. One issue at play is the speed of debt-reduction.

The initial proposal did not include any minimum annual debt-reduction targets. But a group of countries led by Germany wants assurances highly-indebted countries will reduce debt fast enough.

In a bid to assuage German finance minister Christian Lindner, Spain, the current holder of the EU rotating presidency, drew up a compromise text on 28 November compelling highly-indebted countries to reduce debt by one percentage point per year.

Countries with debt levels between 60 and 90 percent of GDP could move at a slower pace of 0.5 percent annually.

German negotiators rejected the compromise and insisted on a one percent limit for all. This has riled other countries, especially France and Italy, who demand more flexibility for individual countries.

On Thursday, French finance minister Bruno Le Maire pressured his German counterpart to agree on a compromise.

"France has already taken every necessary step towards Germany to reach a compromise," Le Maire told reporters.

Le Maire and Lindner have met individually six times in recent months to hammer out a deal which could serve as a basis for a general agreement.

But Le Maire has refused to remove spending allowances for green and digital investment that would circumvent debt reduction requirements.

"This is an absolute red line," he said. "I will refuse rules that could kill off European innovation, productivity and growth."

Some fear no agreement can be reached before the weekend. "That is the million-dollar question. I'd say it is possible, but very uncertain," an EU official told EUobserver.

The official also signalled that German negotiators may not be inclined to compromise for other reasons.

In mid-November, the country's top court ruled that using off-budget Covid funds to allow for investments and hide deficits was unconstitutional.

This has thrown the German coalition into turmoil, forcing chancellor Olaf Scholz's government to find billions to fix up their own national budget.

EU negotiators have noted it has become a "distraction" from European affairs, which may hamper the bloc's ability to form last-minute agreements on further funding for Ukraine.

"I hope there is an understanding in Berlin that the biggest economy of the EU has a responsibility and that without their significant engagement, we will come to an agreement," said budget commissioner Johannes Hahn last week.

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