Finances - EU finance ministers continue to discuss debt rules
The finance ministers of the EU member states are making a new attempt this Thursday to resolve their dispute over a reform of European debt rules. They will meet for a working dinner in Brussels in the evening (19:00). Following this or at a formal meeting on Friday, a political agreement in principle could ideally be announced.
The negotiations between the EU member states are based on a proposal made by the European Commission in April, which envisages individual approaches for each country instead of uniform debt reduction targets. This should enable large public investments that are necessary to combat climate change, the transition to sustainable energy and the modernization of national economies.
The proposals are controversial in the capitals. EU economic heavyweights Germany and France, for example, entered the negotiations with very different positions. Berlin, for example, insisted on uniform requirements for debt and deficit reduction for highly indebted countries - a demand that Paris rejected for a long time. In the end, however, the neighboring countries came closer together. According to diplomats, it remains to be seen whether all countries will reach an agreement. Italy, for example, does not want to accept strict, uniform rules.
Rules currently out of force
The current rules stipulate that debt must not exceed 60 percent of economic output and that budget deficits must be kept below three percent of gross domestic product. Due to the coronavirus crisis and the consequences of the Russian attack on Ukraine, they have been temporarily suspended until 2024. Until now, countries have normally had to repay five percent of debts above the 60 percent mark each year.
A return to the old rules is seen as a threat to Europe's economic recovery. In addition, the rules were often disregarded even before the pandemic - including by Germany.
Effects of the German budget dispute
Despite the ongoing budget negotiations in Germany, Federal Finance Minister Christian Lindner (FDP) is expected to attend the dinner. Until recently, it was unclear whether the tussle over the German budget for 2024 would have an impact on the negotiations in Brussels.
Jeromin Zettelmeyer, Director of the Brussels think tank Bruegel, sees two options with regard to Germany's negotiating position. If Germany decides not to take on any new debt, Lindner could also remain firm in Brussels. Zettelmeyer said that Lindner could then argue something like this: "We have made a great effort, so you can do the same." However, if the German government takes on additional debt over the next few years, he believes that Germany itself could reach the limits of European regulations. "In this respect, it could be that they then also agree to more flexibility in Brussels, for example with regard to debt-financed climate investments," said the expert.
Criticism of Lindner
Sebastian Mang from the Brussels-based New Economics Foundation warned Germany against continuing to insist on strict and uniform debt rules. The constitutional court ruling reveals the conflict between the current debt rules and efforts to invest more in climate protection. "However, Christian Lindner continues to advocate similarly nonsensical, unworkable fiscal rules at EU level. Doing the same thing over and over again and expecting different results is nonsensical and a waste of valuable time while the climate crisis continues to worsen," said Mang. Green public investment could strengthen society and the economy and help to ensure long-term debt sustainability.
The Federal Constitutional Court had declared a reallocation in the German budget null and void. As a result, there is not only a shortfall of 60 billion euros that had been earmarked for climate protection projects and the modernization of the economy over four years. There is now a gaping hole of 17 billion euros in next year's budget. The traffic light coalition in Berlin has been struggling for weeks to find a solution to the budget dispute.
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The finance ministers from various EU member states, including France and Germany, are currently engaging in negotiations over a reform of European debt rules in Brussels. Christian Lindner, the German finance minister, is expected to attend these discussions despite ongoing budget negotiations in Berlin. The temporary suspension of debt and deficit rules due to the coronavirus crisis and the Russian attack on Ukraine is set to expire in 2024, but a return to these strict regulations is viewed as a threat to Europe's economic recovery. EU economic think tank Bruegel suggests that if Germany decides not to take on any new debt, Lindner could maintain a firm stance in Brussels. However, if Germany opts for additional debt in the near future, Zettelmeyer believes Germany could agree to more flexibility in Brussels for debt-financed climate investments. The Budget dispute in Berlin has resulted in a 17 billion euro hole in the next year's budget, leaving the traffic light coalition scrambling for a solution.
Source: www.stern.de
