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28th Aug 2016

Focus

Loosen EU budget rules in return for support, Socialists tell Juncker

  • Socialist MEPs want Commission hopeful Jean Claude Juncker to back Matteo Renzi's plans on the EU's budget rules, in exchange for their support. (Photo: Carlo Nidasio)

Europe’s centre-left forces are warning that Jean-Claude Juncker will have to support a loosening of the EU’s budgetary rules in exchange for their backing him for the European Commission presidency.

Outgoing Socialist group leader Hannes Swoboda on Tuesday (17 June) suggested EU leaders would likely nominate the former Luxembourg PM as a candidate for the post, commenting that “we will negotiate on a programme with Juncker”.

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But the centre-left’s demands are set to focus on whether Juncker will back Italian prime minister Matteo Renzi in his wish to give governments more space to pursue public investment programmes within the EU’s rules on debt and deficit levels.

The Italian PM is to meet EU council president Herman Van Rompuy on Wednesday, with EU leaders to decide on the presidency nomination at a summit next week.

“It’s Renzi’s condition for agreement on any candidate,” said Swoboda, who added that Juncker’s stance could determine whether the 195-MEP strong Socialist group backs him.

Any nominee for the post would need to secure the support of at least 376 deputies in the 751-member EP, with a vote slated for 16 July.

Under the bloc’s stability and growth pact, governments must keep budget deficits below 3 percent and debt levels to 60 percent. However, despite years of budgetary austerity most EU countries have barely managed the 3 percent deficit limit, while average debt ratios have soared to over 90 percent of GDP.

“We don't demand a change to the pact just to its implementation,” said Swoboda, adding that the proposals should not be a “carte blanche” for government spending but “focus on about how certain productive investments can be exempted from the budget figures”.

The idea of putting in place a so-called ‘golden rule’ to exclude growth-driving investment in public infrastructure projects from EU budget targets has gathered support in recent weeks.

Following talks with France’s Arnaud Montebourg on Monday, German economy minister Sigmar Gabriel signalled that the EU should loosen its rules, commenting that “no one wants higher debt, but we can only cut the deficit by slowly returning to economic growth.”

Renzi has already indicated that the issue will be raised during his country's six-month EU presidency which starts next month.

Italy and France, whose leader Francois Hollande is also affiliated to Swoboda’s centre-left group, would be the main beneficiaries from loosening the rules.

Despite being within the 3 percent limit, Italy’s national debt, already the EU’s second largest at 130 percent of GDP, continues to rise because of its sluggish economic performance.

For its part, despite being given a two year extension to cut its deficit to the 3 percent benchmark, France is projected to run deficits of 3.8 percent and 3.4 percent in 2014 and 2015 respectively.

But re-writing the bloc’s budget rules is unlikely to prove popular with fiscal conservatives.

Van Rompuy is drafting a strategy paper outlining the bloc’s economic priorities for the next five years that will be presented to EU leaders, but Council sources indicated that it would contain no measures to water down the stability and growth pact.

One official described the Renzi plan as “an old Italian idea”.

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