EU to review changes to debt reduction rule

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Updates to EU fiscal rules

The EU will consider whether its debt reduction rule needs to be revised given the increased public debt burden during the Covid crisis, a senior Brussels politician said, as the debate over reforming the pact stability and controversial growth of the Union begins to intensify.

Valdis Dombrovskis, executive vice-president of the European Commission, said the EU would look into concerns that the commission’s current regime was “unrealistic” given the sharp rise in debt-to-GDP ratios in many states limbs during Covid-19- induced sagging.

An upcoming commission consultation will also examine calls for more favorable treatment of certain public investments under debt and deficit rules, he said on Saturday.

Dombrovskis ‘words come as EU finance ministers prepare for a politically charged debate over whether and how to reform the Union’s fiscal framework after member states’ borrowing skyrocketed for the pandemic.

The EU suspended its usual spending rules last year in response to the crisis, giving member states more leeway to support their economies, but they are expected to be re-imposed in 2023.

On Saturday, EU finance ministers and policymakers gathered in Slovenia had preliminary discussions on what to do about the labyrinthine and unpopular pact.

The committee and member states are approaching the subject with caution given the deep and long-standing divisions between fiscally conservative states in the north and capitals in the south who want to see them reshaped.

Among the topics of discussion in Slovenia was an EU rule that requires a reduction of 1 / 20th per year in the debt ratios of member states whose debt exceeds the ceiling of 60% of EU GDP.

Many capitals recognize that the rule would impose far too brutal a fiscal tightening on some member states, given that the EU’s overall public debt burden is heading towards 94% this year, with Italy expected to hit a ratio of debt of around 160%.

Dombrovskis, who is seen as conservative on fiscal matters, said the debt rule was raised during discussions over concerns that “it may not be realistic for heavily indebted countries, especially now after the crisis. “.

He added: “So we need to work on a debt rule which, on the one hand, ensures a reduction in public debt and, on the other hand, is realistic for all member states. “

Another reform discussed on Saturday was the idea of ​​removing green investments from deficit rules, with the aim of easing barriers hampering massive public spending programs involved in the climate transition.

Paolo Gentiloni, the European Commissioner for the Economy, has repeatedly warned that the EU cannot afford to repeat the consequences of the last crisis, when public investments collapsed, given the need to increase spending on climate transition over the next decade.

A paper presented by think tank Bruegel said that meeting the EU’s climate goals would require an increase in total green investment of around 2 percentage points of GDP per year, of which public investment will need to be between 0.5 and 1% of GDP.

Bruno Le Maire, France’s Finance Minister, said on Friday that given the “huge climate challenge” the EU was facing, it was worth considering the idea of ​​exempting green investments from the calculation of the deficit in EU fiscal rules.

Dombrovskis confirmed that the idea of ​​a “golden rule” on investment would also be part of the committee’s consultation.

However, the frugal ministers are deeply skeptical of the idea, and they are starting to rally their arguments against the far-reaching reforms of the Stability and Growth Pact.

In a document circulated ahead of the meetings outside Ljubljana, eight ministers said they were ready to discuss “improvements” to the rules, but made it clear that their aim was to simplify the rules and make them better. transparent.

Gernot Blümel, the Austrian finance minister, who organized the joint document, told the Financial Times he was open to discussions on the changes, but questioned the motives of countries pushing for exemptions for green spending, fearing that they would use the proposal as “an excuse not to face rules which are necessary and reasonable.”

Dombrovskis stressed on Saturday that discussions at this stage over possible changes were still conceptual and that it was too early to say whether legislative change would be necessary. It would be essential to reach a political consensus around possible reforms, he added.

Earlier in the crisis, some policymakers argued that the Stability and Growth Pact should be rewritten before the EU re-imposes the rules, but officials meeting on Saturday said it was unrealistic to s ” expect new legislation to be in place soon given the complexity of the impending debate. .

As such, the committee may need to offer further guidance next year on how it wants to impose the unchanged rules in a way that paves the way for a gradual reduction in budget support rather than a crackdown. sudden.


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