MNI: Doubts Grow Over EU Fiscal Rules Deal This Year-Officials

The chances of a deal on overhauling the European Union’s fiscal rules this year took a further blow this week as EU finance ministers' exasperation with the handling of the talks by Spain spilled over into the open after failure to make progress at a meeting in Luxembourg.

So-called “frugal” countries including Germany, which want any new rules to ensure that governments exceeding Stability and Growth Pact borrowing limits be quickly made to rectify, accused the Spanish, who hold the EU’s rotating presidency for the remainder of this year, of inflexibility and of clearly favouring a more lenient regime rather than acting as impartial brokers of talks.

"So far, their strategy has been to put the same landing zone forward repeatedly, and at the same time try to convince Germany and others that we are wrong and that we should just accept the superior Spanish arguments," one frugal official told MNI.

While the frugals regard the proposal being promoted by Spain, which is close to a European Commission proposal which would maintain existing debt limits but allow more leeway in dealing with violations, as too lax, others including France are also unhappy, seeing it as likely to stymie growth.

Another EU source admitted that getting a deal before year end could be a “stretch” and said there had to be a “lot of scepticism” as to whether the talks could move forward. With European parliamentary elections next June, failure to reach agreement by early 2024 at the latest would mean negotiations on the fiscal framework would stretch well into next year at least, at a time when government finances face renewed scrutiny in debt markets. (See MNI:Higher Yields Making EU Fiscal Rules Deal Harder-Officials)

SPAIN STILL PUSHING FOR DEAL

A Spanish source insisted progress is being made and that the presidency would work intensively to get a deal by the end of the year. Madrid is focusing its efforts on finding a balanced proposal that pleases all, the source said.

“We are getting to a point where countries are strongly defending their own interests and it’s normal,“ the source said, “it’s just a very complex matter both at political and technical level.”

Some officials cited speculation that Spain, which has taken tighter control of talks since a failure to make progress at this week’s meeting of finance ministers, may call an extra ECOFIN at the end of October to try for a breakthrough. One EU source surmised that next Friday’s Euro Summit could also see leaders give finance ministers a prod to get a deal done. European Central Bank President Christine Lagarde and Eurogroup President Paschal Donohoe are likely to remind ministers that markets would not look kindly on failure to agree new rules.

While some countries would welcome a Franco-German understanding in a push for a deal, other big players like Italy fear that this may lead to an agreement they dislike.

“This is precisely the crisis of the European model as we know it. It is very difficult to get out of this situation and reach an agreement on the reform if everyone remains firm in their ultra-national positions,” one Italian official said.