MNI: Germany To Clarify Position On EU Debt Rules-Officials

EU officials are waiting for Germany’s coalition government to clarify its stance on the reform of Europe’s fiscal rules ahead of what are likely to be intensive discussions among finance ministers as well as within a still-divided European Commission in September, they told MNI.

Brussels officials expect Germany to submit a position paper in the coming weeks. But while German Finance Minister Christian Lindner is willing to see some public investment exempted from rules limiting borrowing under the Stability and Growth Pact, EU officials fear that agreeing a common position may be more difficult, given the make-up of the country’s red-yellow-green coalition.

Finance ministers will next discuss the issue in early September with the Commission providing its concept for reform later in the same month. The Commission has made clear that it wants its proposal to meet with broad support from EU states.

“The German position is very important, and I think the Commission would want to come forward with a proposal that would not be completely incompatible with a German proposal,” an official said.

While intensive discussions at the end of 2021 and early in 2022 gave the impression that an overhaul of Europe’s fiscal regime was progressing with agreement on measures such as giving countries more time to reduce excessive debt levels but keeping key metrics such as the 3% of GDP limit on budget deficits, Russia’s invasion of Ukraine and recent French National Assembly elections which saw setbacks for President Emmanuel Macron’s centrists have pushed the subject onto the backburner.

COMMISSION DIVISIONS

While southern countries have called for a significant relaxation of rules on debt, France has taken a more moderate line, and one official said it would not be surprising if Paris and Berlin eventually adopted a common stance. (See MNI: EU Steers Away From Big Changes To Debt Rules)

“We know that Spain and Italy are pushing for a substantial review of the fiscal rules and France has always been more moderate in its approach because it’s always more important for them to have a coordinated approach with the Germans,” a source said. “For all major reforms in the past that is what has happened, so it is not unreasonable to expect something similar again.”

Such a grand catalyst may be needed to get the much-delayed fiscal reform talks moving again after largely stalling following Russia’s invasion of Ukraine in February.

But differences exist within the Commission itself. Economy Commissioner Paolo Gentiloni is said to be pushing for an overall revamp of the governance regime, while Executive Vice President Valdis Dombrovskis supports a more interpretative review of the implementation of existing rules.

“The Commission is unsure about the form of the proposal,” a source said. “Will it be a mere logistical proposal, just a correction of the existing memoranda on the application of the rules or are we changing the framework and the rules themselves?”

While the long argument between Gentiloni and Dombrovskis appeared to be nearing resolution before the Ukraine war, sources say that the economic situation has since changed so dramatically that it is hard to predict which of these two camps now has the upper hand.