MNI INSIGHT: EU Fiscal Rules Reform Talk Delayed To Sept

The EU Commission has pushed back the start of talks on reform of the eurozone's fiscal rules until September, with officials loathe to start what is likely to become a controversial discussion until the economic recovery is underway, MNI understands.

It had previously been expected that consultation on reform of the Stability Pact would kick off this Spring after last year's planned discussion on economic governance reform was derailed by the Covid crisis and any further delay could threaten the Spring 2022 timetable for the submissions of draft 2023 national budgets to Brussels.

Instead of setting a date for a return to austerity, the EU is now making any restoration of fiscal rules dependent on growth restarting, determined not to repeat the mistake of withdrawing support too soon following the 2008-9 financial crisis, with the debate on new fiscal rules a victim of this widely shared policy priority, MNI has learned.

HANDS FORCED

But the EU's hand could yet be forced, some officials believe, with calls for Germany's constitutional debt brake to be restored likely to win strong backing from many voters in the upcoming September elections and other countries – including the so-called 'Frugal Four' - would also favor an early return to rules.

There has been some "disappointment" over member states' draft national recovery plans, some of which have already been submitted to the Commission for comment, and which have to be approved by the end of April, with few of them outlining the reforms that are needed to underpin investment spending.

A number of EU countries have had difficulties in the past in putting EU funds to effective use because of administrative and other bottlenecks.

One brighter note, some in Brussels think the Commission and member states may be doing a better job than the US in following the advice of former US Treasury Secretary Larry Summers, who recently advised euro area finance ministers that they would do well to properly phase investments over a number of years, with Washington doing "a lot less" in terms of structuring investments and bringing investments onstream in later years.