More fiscally conservative states see European Commission proposals for fiscal rule reform go to easy on over-indebted governments.
European Commission proposals for reforming the European Union’s fiscal rules have met with scepticism from Germany and other fiscally hawkish states, which want more concrete details of its assessment procedures and more aggressive timetables for pushing over-indebted governments towards sustainable financial positions, EU officials told MNI.
While the Commission is still likely to get most of what it proposed in its Nov 9 ‘Orientation Paper’, including a bigger and wider-ranging role for itself in assessing national fiscal plans, officials said work over the coming months would focus on the practicalities of how it would move states with a “substantial debt challenge” into the “moderate debt challenge” group within a reasonable timeline.
Finance ministers are likely to vent their frustration with the lack of key details in the Commission proposals at a meeting in Brussels Dec 5-6.
“The big question that needs answering is, if this new framework is meant to work, what do the fiscal hawks need in order to be reassured that debt is credibly declining?” one EU source said.
FRANCE DISPUTES DEBT STATUS
Hawks regard the Commission’s proposals for a four- to-seven-year adjustment for states breaking the rules to put their debt on a permanently declining path as far too lax, officials said. Agreement is also a long way off over how the Commission will arrive at the debt sustainability calculations for its proposed “new reference adjustment paths.”
More indebted states are also pushing for changes in the proposals, and France is resisting being classified as highly indebted at all, officials said.
Many of the points still to be defined, including details on how to assemble the reference pathways, are sensitive issues which have yet to be agreed even among the 27 European Commissioners.
Eventually some of the pending issues may be resolved by allowing the Commission greater discretion over how it enforces the rules rather than by adding complexity to a reform meant to simplify the existing Stability and Growth Pact. While this may not please hawkish countries, who suspect the Commission of taking some highly politicised decisions in its fiscal enforcement of recent years, favouring Italy in particular, some officials said this may prove the easiest option for all parties.
Even hawkish finance ministries may see some attractions in the idea, as it would make it easier for them to blame the Commission if their national fiscal performance falls short, the officials noted.
A proposal in a German non-paper for an independent fiscal watchdog to enforce the new rules looks likely to fade away. One official pointed out that it was unrealistic to expect a panel of experts to make what is always going to be a political assessment.
The fiscal rule reform may be finally approved next year.