The EU faces the reform of the deficit and debt rules divided

The debate on fiscal rules still keeps the countries of the European Union seriously divided, waiting for the European Commission to put on the table a proposal for a future reform of deficit and debt limits.

Thomas Osborne
Thomas Osborne
14 February 2023 Tuesday 11:33
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The EU faces the reform of the deficit and debt rules divided

The debate on fiscal rules still keeps the countries of the European Union seriously divided, waiting for the European Commission to put on the table a proposal for a future reform of deficit and debt limits. This was verified yesterday at a meeting of the Ministers of Economy and Finance of the Twenty-seven (Ecofin), in which they also supported the inclusion of Russia in the list of tax havens.

One month before the deadline to reach a consensus, the European governments verified that the reform of the Stability and Growth Pact remains something divisive. Brussels presented in November a series of ideas for the future legislative proposal for tax rules, considered outdated and which have governed the European economy for the last 30 years. Specifically, the Commission launched the idea of ​​including a spending ceiling per country with a realistic path to reduce debt, in a more individualized way, and with the application of sanctions, but less harsh.

After yesterday's meeting it was found that the discussion is "complicated", but not impossible. "They are different countries and each one has their own vision, it is not a secret that member states have different opinions (...) but I see the opportunity to reach a consensus," said Swedish Finance Minister Elisabeth Svantesson, whose country holds the rotating presidency of the Council. “We don't shy away from difficult discussions,” she added.

Brussels hopes that in the next March meeting of the ministers and after the summit of European leaders next month, the Executive will put on the table a legislative proposal that is capable of uniting the maximum consensus thanks to the impressions that have been maintained up to the date. The Economic Vice President, Valdis Dombrovskis, advanced that the objective is to propose it at the end of March or, at the latest, beginning of April.

Despite the fact that the Swedish presidency tried to downplay the fact that there are “blocs” in the discussions (“there are only different opinions”, argued Svantesson) the truth is that they exist. While some ask for more flexibility in the rules, like Spain, others ask that the sustainability of public finances be prioritized, like Germany. However, the debate is more open and, for the moment, nobody wants to bet on the total dogmatism of the fiscal rules.

The German Finance Minister, Christian Lindner, has never been convinced by the idea that the Executive has in mind, because he is wary that it could lead to a reliable reduction in the debt. Even so, Berlin is open to reform, knowing that the current rules are outdated and that the need for change is “clear”. The German government, as well as that of the Netherlands, calls for more "transparency" about national debt reduction paths.

For his part, Dombrovskis admitted that the main point is to find “the right balance” between the countries' plans to reduce debt according to their specificities and at the same time agree on a common framework that provides “transparency”. In any case, the rules will not be held in abeyance for another year, he added. But time is pressing, because once the EC makes its proposal in just one year it should have been approved, in time for the European elections in May 2024.

Likewise, the ministers addressed the impact of economic sanctions on Russia, in which they defended that they are affecting the country's economy. Precisely, the ministers also approved their inclusion in the list of tax havens, to which Costa Rica, the British Virgin Islands, and the Marshall Islands were also added.

The Swedish headline rejected that the inclusion of the Russian Federation is due to political issues, but that the recent legislation adopted by the country on international "holding" companies does not respect the rules, in addition to the fact that cooperation with Moscow since the invasion of Ukraine is non-existent. Inclusion on this list, in any case, has hardly any implications. Member States cannot have entities in these countries but, apart from this, Brussels has always trusted that being on this list implies a reputational crisis that encourages these countries to apply changes.