MNI: France, Germany Far Apart Ahead Of Fiscal Rules Talks

A last-ditch attempt to overhaul the European Union’s fiscal rules in time for parliamentary approval during the first half of next year looks to have an uncertain chance of success, with no agreement yet in a dispute between Germany and France over how to measure budget shortfalls under the EU’s Excessive Deficit Procedures, officials told MNI.

Spain, holder of the EU’s rotating presidency, has also ruled there will be none of the usual preparations ahead of the specially-convened meeting of finance ministers on Dec 20, either at sherpa, diplomatic or even technical level, a move which has fuelled speculation that there has been no progress towards compromise since a late-night working dinner on Dec 7-8.

“I don’t really know why they think another meeting is so important. It’s clear that we are still quite far from agreement,” one national official said.

The decision to hold next week’s meeting in a video format also has officials concerned there will be no scope for the usual face-to-face ways of bringing pressure to bear on holdouts. Talks are currently stuck, with France and Germany disagreeing over whether structural or primary measures should be used when deciding on Excessive Debt Procedures. (See MNI: Talks Turn Tough Ahead Of Dec 8 EU Fiscal Rules Meeting)

TIME RUNNING SHORT

Without a deal this year, the time for any agreed reforms to the rules on borrowing in the Stability and Growth Pact before European parliamentary elections in mid-2024 will be very short. Some officials speculated that Spain might try to present its proposals for a compromise landing zone, which would make it easier for overly-indebted countries to extend their adjustment programmes to seven years, as near enough to a deal in order to end of its presidency on a high note, with outstanding issues left to be addressed as technical points by the incoming Belgian presidency in the first half of 2024.

But such a solution raises another, more fundamental problem, which is the ever-growing complexity of the reform proposals.

“Complexity is absolutely an issue,” one source said, adding that the European Central Bank had told finance ministers that it saw this as a problem.

The European Commission’s original proposal for debt consolidation plans, which would be tailor-made for individual countries, has been overlaid by the minimum benchmarks for debt and deficit cuts demanded by Germany and the so-called “frugal” countries. This goes against the original aim of the Commission to simplify the fiscal regime, and could also create perverse incentives.

French officials have decided, for instance, that the current landing zone proposal would make it easier for them to face an excessive deficit procedure next year than to do what is necessary keep its budget deficit below 3% of GDP.

“That is how the French see it,” said one official, noting that Paris seems to regard the 0.5% of GPD minimum adjustment in the deficit under the procedure as a maximum.

“It remains very unclear what to expect of next week,” one official said.