MNI: EU Excessive Debt Procedures Under New Rules-Officials

Excessive Deficit Procedures against a group of eight to 10 European Union countries to be launched on June 26 will be defined under the terms of reformed and more flexible fiscal rules finalised in Trilogue talks with the European Commission and Parliament last week, officials in Brussels told MNI.

The Commission is also likely try to announce new so-called “technical trajectories” for the public finances of all EU member states, a key element under the new rules, as the same time as the procedures, the sources said.

“The EC wants to integrate as much as possible of the new rules into the decisions they make in June,” said one source close to fiscal discussions.

The early adoption of the new rules, which would allow interest bills to be partly shifted to towards the end of fiscal transition periods, followed an offensive for such a move from Italy and came as today’s EC forecasts revealed a weakening growth outlook for the bloc. Provisions in the new fiscal rules which seek to protect public investments in strategic areas such as defence, energy security and the green and digital transitions, are also likely to be taken into consideration in the EDP assessments, sources said. (See MNI: Italy To Seek To Avoid Excessive Debt Procedure)

GRADUAL AND REALISTIC CONSOLIDATION

Economy Commissioner Paolo Gentiloni told reporters that the 2024 growth downgrade means EU states should remain “agile”. Turning to the impending EDP launches, Gentiloni advised that states should approach fiscal consolidation in a “reasonably gradual and realistic” way.

The new fiscal rules will allow the Commission leeway in deciding adjustment programmes, one of the sources noted, though he added that the Commission will have its work cut out in coming months clarifying many of the practical details of implementation.

“The Commission can give consideration to special factors. They already have a lot of flexibility – also clearly there is a difference of opinion over how to apply the EDP – they have to apply it because the rules say so but how they do so is up for discussion," said the source. “But how do you account for defence? How much is investment? What about wages for the armed forces -- is that investment? The Commission needs to clarify many things.”

Under the new rules, states will also be able to request a dialogue with the Commission before it publishes the recommended “technical trajectory” for their country. The Commission will also have to explicitly take into account their investments in EU priority areas before launching an EDP thanks to amendments introduced by the Parliament in the Trilogue talks. (See MNI: EU Nears Fiscal Rules Deal In Trilogue Talks)

Also still to be resolved is how the new multiannual fiscal plans interact with the complex overlay of safeguards as demanded by Germany during the long negotiations on the fiscal rules, including an insistence on fiscal deficits being limited to 1.5% of GDP in the medium term. In the coming weeks, the Commission will be preparing a detailed manual on how the new rules will work in practice and what will be expected from member states, many of which are said to be chafing at the rapidity with which the Commission is proposing to implement the new rules.