The president of the European Central Bank, Christine Lagarde, sent an urgent message to the leaders of the Twenty-seven yesterday. Geopolitical risks, the decline in growth, the need to make investments to maintain competitiveness... In economic terms, Lagarde stressed, everything pushes the countries of the European Union in one direction: the urgent updating of the common fiscal rules.
“The European fiscal framework must promote both debt sustainability and the investments necessary to maintain competitiveness and resilience. Finding an agreement on the future application of the stability and growth pact before the end of the year would be important for unity,” the president of the ECB asked the leaders during the euro summit held in Brussels. A no-deal scenario could cause problems in the markets, Lagarde warned them, according to European sources.
The conclusions of the European Council call on Economy Ministers to “continue work” on the reform of economic governance “with a view to reaching an agreement before the end of 2023.” From the text, however, the call to do so "without delay" has been dropped, a change that Frankfurt observes with concern, as well as the fact that the summit barely devoted any time to the issue and neither the German chancellor, Olaf Scholz, nor the French President Emmanuel Macron to intervene.
The Spanish presidency of the Council does not contemplate the possibility of not reaching an agreement this year (the acting president of the Government, Pedro Sánchez, said yesterday that he will get involved "personally" if necessary to achieve it), but Berlin has been saying for weeks that yes If this is not achieved, the old rules will simply come into effect. This attitude, added to the frontal rejection of the German Ministry of Finance of the model proposed by the European Commission, with debt reduction plans tailored to the situation of each country and wide margin to decide the pace of fiscal consolidation, is contributing to the debate moves clearly towards the German positions.
All the proposals currently being handled, coming from Germany, Spain or Denmark, contemplate different ways of imposing mandatory reductions; the principle is no longer questioned, the difference is in how it is quantified. “Countries in the south will be able to say that the new pact is smarter, more open and that it allows reforms and investments to be taken into account” and those in the north, for their part, that “it contains more automatic debt control mechanisms than before.” ”summarize diplomatic sources.
But “we are going towards a more structural system of debt reduction,” they add. To the old well-known file for excessive deficit will now be added the possibility that countries will be charged for not reducing the debt sufficiently each year based on public spending data.
After the failed attempt to reach an agreement in October, several delegations had the feeling that the Spanish presidency had “taken its foot off the pedal” but the negotiations are back on track for the December meeting, the Commission points out. The alternative to an agreement is the return not to the original stability pact but to the one reformed in the heat of the euro crisis, which imposes the annual reduction of one twentieth of the debt above 60%, a harsher system than the alternative that is on the table.
