MNI:Concerns Said Building Over Pace Of EU Fiscal Reform Talks

Concerns over the pace of talks to reform the EU’s fiscal rules are mounting as France’s turn in the rotating presidency looms for the new year, officials in Brussels told MNI.

The talks have already narrowed in scope given member states’ desire to avoid a treaty change, meaning that key Stability and Growth Pact rules such as the 60% limit on debt-to-GDP and 3% annual budget deficit ceiling are certain to remain. But even attempts by EU finance ministers to discuss more modest reforms have been held up since the commencement of talks in the autumn by the formation of the new German coalition, while the incoming French presidency is expected to be distracted by presidential elections in April and National Assembly polls in June, the officials said. (see MNI: Positive Start To EU Debt Reform Talks, Long Haul Ahead)

EU Commission President Ursula von der Leyen aims for agreement on reform before the end of 2022, ahead of the Stability Pact’s reactivation due at the start of 2023. But the officials said it would be unrealistic to expect a reform outline to be in place by the middle of next year as earlier hoped. Instead, they said, the Commission and finance ministers might try to include some ideas for a reform in the EU’s regular annual fiscal policy advice to member states in March and June next year ahead of the preparation of 2023 draft budgets.

“I think (that) is their approach, but it is a slow one and how much it progresses the discussion in the meantime is hard to say, because that depends crucially on the member states and how they respond and how the French presidency responds,” one official said.

There are also concerns that such an approach to reform will only further entrench a fiscal surveillance system already managed by Commission discretion and not anchored by clear rules.

“That is a dangerous road, because we think it undermines in the long run respect for the rules. It would have been better to have some kind of a solid start to the reform discussions.”

INTERNAL COMMISSION DIFFERENCES

French President Emmanuel Macron spelled out his priorities for the H1 2022 EU Presidency last week, but officials noted the lack of emphasis on fiscal reform in his comments, even as he used the opportunity to grab headlines by proposing new EU spending initiatives, something unlikely to go down well with the new German FDP Finance Minister Christian Lindner.

“We don’t need more fiscal boost now,” said one source from a fiscally more hawkish member state, noting that payments under the massive NextGenerationEU scheme are only just starting.

Even within the Commission there are still clearly very different ideas on reform, with Vice President Valdis Dombrovskis’s more fiscally conservative stance contrasting with arguments from Economic Affairs Commissioner Paolo Gentiloni, who wants the rules to favour public investment over the longer-term.

Some more hawkish states are said to be still pushing for the return of the 1/20 rule, under which the excess of public debt over the 60% limit should be reduced by 5% a year.

They base their argument on the currently strong EU outlook, but once growth slows, old thorny issues of investment and the interpretation of debt-adjustment will crop up again to snag the talks.

“It should be tackled now, but I think most people would agree that that would be overambitious,” an official said.