After four years of fiscal holidays in Europe, with the stability pact suspended to deal with the economic impact of covid and the war in Ukraine, the time is approaching to return to budgetary discipline. The old deficit and debt limits of 3% and 60%, respectively, as well known as unrealistic, will be reactivated on January 1, but if the calculations made last night by the Ministers of Economy of the Twenty -i-seven were correct, they will be applied within a new legal framework that should allow the accounts to be cleaned up without stifling growth and without preventing governments from investing in strategic areas, such as the energy transition and defence.
The rapprochement of positions between Germany and France in recent days points to an imminent end to the negotiations. The agreement is within reach, assured yesterday the vice-president of the Spanish Government and acting president of Ecofin, Nadia Calviño, hours before the start of a working dinner of the Ministers of Economy of the Twenty-seven -"without a scheduled end time"-, from which the main lines of the reform had to come. "We have already warned the ministers that it will be a long night", said Calviño. "The Spanish presidency's proposal goes in the right direction to find the necessary balance" between the need to agree on a framework that ensures sustainable debt reduction plans and to give flexibility to governments to make investments, he assured.
Negotiations on the reform began more than two years ago. A key point in this long journey was the presentation of the European Commission's proposal to "modernize" the application of the stability pact, a fiscal corset with a credibility that, in its current form, is more than in doubt facing the markets, because even during the high moments of the cycle it has not managed to prevent the growth of debt, especially in the countries of the south.
Brussels considered developing adjustment plans for the four years tailored to each country, agreed bilaterally with the respective governments with "more gradual and realistic" adjustment plans, a real revolution that put Germany on guard, which , as negotiations have progressed in the Council, has strengthened its position by attracting more allies from northern Europe.
After dozens of technical and political meetings, the Spanish presidency of the Council put on the table yesterday a compromise proposal that compensates for the increased flexibility of the new system (the adjustment period can be extended from four to seven years in case of reforms or investments) with the obligation to make an annual debt reduction equivalent to 1% of GDP for countries where it exceeds 90%, as is the case of Spain, and an adjustment of 0.5% for countries where it is between 60% and 90%. In addition, a minimum annual adjustment of at least 0.5% of GDP will be required of the deficit in countries where it is above 3%, to which excessive deficit procedures will be reopened.
That there are statements that point out that it is both "too hard" and "too soft", indicate that the text is balanced, Calviño defended before the meeting, with all eyes on the Franco-German axis. "France and Germany have worked intensively in the last two months" and, "as Minister Bruno Le Maire has said, our positions are 90% similar", emphasized the German head of Finance, Christian Lindner, who was opposed a priori to to soften the treatment of countries with excessive deficits, as Paris claims, which requests that the minimum annual adjustment of this figure be limited to 0.3%.
"There is a red line that France will not cross," warned Le Maire in a telematic meeting with the press. "We want the incentive to invest and to carry out structural reforms for all member states to be preserved at all times, whatever the financial situation". France, the minister summarized, wants "clear, firm and credible" rules, but applicable, not "unrealistic". This is also the position of Italy, which has managed to exclude defense investments from the calculation to compensate for the tightening of the text.