MNI: EU Should Ease Debt Rules-German Savings Banks Official

The European Union should loosen its rules governing borrowing to allow “slightly” more fiscal space in order to make them more sustainable for more indebted countries, a senior member of the German Savings Banks Association told MNI.

The limits in the Stability and Growth Pact have often been broken anyway, DSGV Executive Board member Dr. Karl-Peter Schackmann-Fallis said in an interview, as talks to reform the pact continue between European Union countries.

“A modernisation of the Stability and Growth Pact that preserves its ambition and leads to clear and widely accepted rules seems appropriate and feasible – even if limits had to be raised slightly to reach a consensus in Europe,” he said.

More fiscally conservative countries have resisted a push by southern nations for looser SGP limits, with officials reporting that key rules such as a 60% limit on debt-to-GDP and a 3% annual budget deficit ceiling are likely to remain, as MNI has reported. (See MNI:Concerns Said Building Over Pace Of EU Fiscal Reform Talks)

BALANCE BETWEEN CREDIBILITY AND SUSTAINABILITY

Hopes had risen that Germany's new "traffic light" coalition between social democrats, free liberals and Greens would be more ready to agree to easier debt rules, and Finance Minister Christian Lindner has said that Germany is “open to progress and further development”. But officials have also stressed that Berlin will continue to argue for sound finances at the EU level.

“Any reform has to find a balance between credibility and sustainability,” Schackmann-Fallis said, in an interview in he also repeated calls for the European Central Bank to tighten monetary policy and warned that inflation is likely to remain considerably above the ECB’s 2% target. The ECB should also adjust the tiering multiplier on its deposit facility, reducing the impact of negative rates on the banking system, he said.