MNI: EU Agrees Compromise Way Forward On Fiscal Rules Reform

Finance ministry deputies meeting in Brussels this week agreed a path forward on reform of the European Union’s fiscal rules in a compromise which acknowledges proposals by the European Commission but concedes that key contentious points remain to be clarified, paving the way for legislative proposals, EU officials told MNI.

The hold-all nature of the agreed text is designed to accommodate wide areas of disagreement between states over the reform and means that negotiations on the actual content of a definitive fiscal reform deal over the coming months are unlikely to be any easier than expected.

However, the agreement will allow the Commission to come forward with legislative proposals for overhauling the Stability and Growth Pact, most likely in April, reducing the risk that the old rules will come back into force next year following the expiry of a waiver enacted to help states cope with the effects of Covid and the Ukraine war.

The text of the conclusions highlights the key points of the Commission’s orientations paper of last November 2022, on the central role of fiscal-structural plans, the use of reference paths for debt reduction, the possibility of country-specific escape clauses and the need for greater flexibility.

On the other hand, it also calls for consideration of key demands from Germany and other “frugal” states, such as the need for a minimum fiscal effort as well as for stronger enforcement of the rules if a new flexibility is abused.

FISCAL STRATEGY ADVICE

Describing the text of the agreement, one EU national finance ministry official said the compromise “is in the spirit of general guidance for the new system, it clarifies that the (existing) excessive deficit procedure will not change, that a new system should effectively reduce debt while taking account of the starting point of countries and takes note that certain issues need to be clarified further.”

The agreement comes as the Commission prepares its fiscal strategy advice for member states in 2024, likely to be released next week, although a precise date has yet to be agreed. (See MNI:Balancing Act To Keep EU Fiscal Reform On Course-Officials)

In producing this fiscal advice, the Commission will face a challenging balancing act between basing guidance on the old Stability and Growth Pact rules or its November 2022 reform proposals.

“The existing legislative framework is still in place so of course that must be followed but the guidance will reflect the orientations (the Commission’s November 2022 proposals) to an extent,” the official said.

The fiscal strategy announcement is also likely to reiterate the Commission’s call for fiscal policies to provide better support for the ECB’s anti-inflation fight.