The EU accelerates the pace in Santiago on the path to new fiscal rules

The end of the European Union's long road towards a new framework of fiscal rules is closer.

Oliver Thansan
Oliver Thansan
15 September 2023 Friday 22:40
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The EU accelerates the pace in Santiago on the path to new fiscal rules

The end of the European Union's long road towards a new framework of fiscal rules is closer. The goal was not reached this Saturday at the informal meeting of European Finance Ministers held in Santiago de Compostela, but everyone has assumed that they must get there this year.

“We have had a very fruitful debate and in the coming weeks we will move forward to reach a possible agreement in October,” celebrated the host of the meeting, the vice president of the Government and Minister of Economy, Nadia Calviño, who assured that 70% of the text legal is now closed. Ministers, she explained, have “unanimously” committed to following that schedule. “Now the time has come to seek a compromise” based on “the appropriate balance between a framework that guarantees gradual paths of debt reduction and the need to ensure the fiscal space necessary to make investments and have incentives to make structural reforms.” That balance is the crux of the matter, that 30% of the text that remains open.

The vice president of the European Commission, Valdis Dombrovskis, praised the “ambition” of the calendar proposed by the Spanish presidency. “It is very committed to achieving it and we have defined the way in which we are going to do it, the Fiscal Path,” he said, evoking in Spanish the pilgrimage to the tomb of the apostle Santiago to refer to the next stages of the negotiation.

The objective of the Spanish presidency is for the talks to move from the technical to the political field and for the Finance Ministers to “roll up their sleeves” and an agreement can be closed at their next meeting, although more meetings will then be necessary to resolve pending issues. The EU stability pact was suspended during the pandemic and afterwards to help governments deal with the fallout from the Ukraine war. Looking ahead to its reactivation in 2024, the EU is negotiating a more flexible legal framework, without formally renouncing either the 3% public deficit ceiling or the objective of maintaining public debt at around 60%.

Relying on the successful economic management of the pandemic and in contrast to the bad experience of the euro crisis, Brussels proposed in April to design tailored suits for each country, with more realistic debt reduction paths in line with the situation of each economy. in exchange for reforms, instead of the one-size-fits-all of the original stability pact. The approach was applauded by France, Italy and Spain but the proposal goes too far for Berlin, which insists on agreeing on a common debt reduction percentage binding on all.

The Commission's proposal gives governments room to decide how to achieve the 3% target and is limited to requiring a minimum annual deficit adjustment of 0.5% of GDP, with a gradual debt reduction path of four years that can be extended. to seven. Although at an exhausting pace, the debate has advanced on some points. According to European sources, there is “margin” to reach an agreement that allows “excluding” certain expenses from the calculation of the deficit, an old demand of Italy and France but “very limited” both in the type of investments that would be affected and in the amount. Italian diplomatic sources assure that the German delegation “is not opposed to the idea”, a point not confirmed by Berlin, although according to community sources the discussions have been “very constructive”.

The European Commissioner for Economy, Paolo Gentiloni, assured yesterday that there has been "progress" but urged European governments to "not alter the balance" that his proposal reflects and that in his opinion allows guaranteeing a path of downward public debt but without compromising the possibility of making investments to undertake the energy and digital transition that the EU has undertaken. “We cannot modify only in one direction a proposal that must maintain together both the objective of financial stability and that of promoting investments and growth in a context of slowing economy,” says Gentiloni in response to Berlin's insistence on toughening the formulation of the new rules.