MNI: Germany Looks At Gentler, Extended 7Y EU Debt Plan-Source

MNI (BRUSSELS) - Germany is considering whether to opt for an extended seven year debt consolidation plan under the European Union’s new fiscal rules rather than the tougher four-year standard plan, a source close to German policymakers confirmed to MNI.

The German government will stand by its obligations under its own constitutional debt brake even if opts for the seven-year plan, the source said.

"As far as I know, the seven-year plan does not negatively interfere with the debt brake. Either the federal government has to be more ambitious than the debt brake requires, then the EU fiscal rules bind the government,” the source said.

"If the 7-year plan is less ambitious, the debt brake binds the federal government. No need to have a decision by the Constitutional Court on these grounds. Regarding the spending path that will be agreed with the Commission, I do not see at the moment how this should lead to a violation of the constitution."

EU sources told MNI that under a four-year plan, Germany would be required to pursue a tighter fiscal policy than that which would be needed under the debt brake alone.

LESS DRASTIC ADJUSTMENT

A former senior EU official following fiscal developments told MNI that a seven-year plan for Germany would require a neutral fiscal stance, with an adjustment of only around 0.1% per year, while the debt brake alone in the German budget proposal for 2025 would require a 0.75% adjustment. (See MNI INTERVIEW: Fiscal Rules Require EU Fiscal Capacity)

Commission Spokesperson Veerle Nuyts told MNI that if Germany decides to opt for a seven-year plan it would have to "present a set of reforms and investments meeting the criteria in the new rules."

These measures would have to be "growth-enhancing and support fiscal sustainability."

The plan would also need to show how it would deliver on the green and digital transitions, as well as bolstering security capacity.

"Once we have received the plan, the Commission will provide its assessment against the requirements set out in the EU legislation," Nuyts said.

German tax revenues have disappointed to the downside recently against a backdrop of growing investment needs and a weakening economy. Finance Minister Christian Lindner's FDP party is also under pressure within the governing coalition and its support among voters is weakening ahead of next year's elections.

A debt brake-aligned seven-year plan could help him out while also addressing Germany's long-term growth challenges, while a more pro-growth stance would also be welcome in Brussels.

(Additional reporting by Santi Pinol)