MNI: Brussels Toughens Up Fiscal Rules Proposals - Officials

The European Commission has briefed senior member state finance officials about suggested amendments to its November 2022 proposals for reform of the bloc’s fiscal rules, which would take a stricter approach to deviations from limits on public debt and borrowing than initially planned, European officials told MNI.

The video briefing last Friday came after harsh criticism of its original proposals from countries like Germany, which objected to allowing the Commission greater flexibility in assessing compliance with the rules in the Stability and Growth Pact.

In a gesture towards bringing Germany and other “frugal” countries on board as the Commission pushes for an SGP reform to be approved this year, Brussels proposed assigning formal plans for debt reduction to countries assessed at being at only moderate risk of deviation from limits such as the ceiling on budget deficits and total public borrowing of 3% and 60% of GDP, in effect bundling them in with high-risk member states, officials said. (See MNI: EU Fiscal Rules Reform Unlikely During Spanish Presidency)

SOUTHERN DISCOMFORT

In response to German and frugal demands for a common quantitative benchmark for debt reduction, the Commission suggested options including a structural deficit adjustment of 0.5% of GDP as a benchmark for countries under the Excessive Deficit Procedure, or else frontloading the adjustment foreseen under the extended, seven-year plan for high-debt states into the first four years.

While the new ideas would seem to go some way towards meeting the objections of Germany and the frugals to the November proposal, high-debt southern countries are less satisfied. Sources present at the meeting said the revised proposals met with a mixed reception.

One national fiscal source was scathing, suggesting that the Commission’s change of tack showed the discussions are now highly politicised and lacking in consensus.

The Commission is expected to incorporate the feedback into its legislative proposal for reform, which it expects to present at the end of this month.