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MNI INTERVIEW1:Germany Opposes Franco-Italian Fiscal Rule Push


Germany is likely to oppose French and Italian proposals for more favourable treatment of investment under the European Union’s fiscal rules, but could be open to modifications to the bloc’s Stability and Growth Pact to allow countries to reduce excess borrowing more gradually, Parliamentary State Secretary for the Finance Ministry Florian Toncar told MNI in an interview.

“Of course, there is the need for public investment,” Toncar said in an interview. “But rather than looking to lower the standards to create looser, less strict fiscal rules, we need to use all the advantages of a large internal market, which is still far too fragmented along national lines.”

Improving the EU’s capital markets, banking, financial services and digital services, as well as the labour market, would be “less costly and more effective for economic growth than all these wise and exhaustive programs we have seen,” he said.

French President Emmanuel Macron and Italian Prime Minister Mario Draghi have made a joint call for borrowing for investment to be treated more leniently under the Stability and Growth Pact, but Toncar made clear that Germany was not in favour.

“If you exempt investments from the rules, then you can spend more on welfare,” he said. “This is probably also the motive behind this argument, not so much the idea of investment.”


Changes to some aspects of the SGP are possible, said Toncar, but these cannot come at the expense of stability.

“Of course, you can discuss whether it's realistic to bring back some countries from 130% to 60% of GDP within 20 years or not - this is a valid discussion - but still, we also believe all member states need fiscal buffers to be prepared for the next crisis,” he said.

“From the discussions in Europe, my impression is that although some ideas have been launched regarding how far debt reform restrictions can go, and there will be other ideas, no one wants to change the EU Treaties,” he said, “so there is probably not much room for big revolutions.”

While in the lead-up to last year’s German elections some European officials had hoped that a new administration in Berlin might take a more expansive approach to the bloc’s finances, Toncar, who served on the finance working group during coalition discussions last year, said that the government agreed on its approach.

“We have a clear agreement in the coalition agreement that the Stability and Growth Pact, with its existing tools for flexibility, is a good basis, and has shown its value,” Toncar said. “This does not mean that you cannot discuss certain technical elements of it, but we will certainly not support giving up the crucial concept of stability in the monetary union.”


On the “very, very challenging” questions of banking union and the proposed creation of a European Deposit Insurance Scheme, Germany has signaled its willingness to make progress, Toncar said, adding that it could seek an opt-out for its savings banks.

“We have agreed that we want a market neutral solution. This could be, potentially, a general exemption, but not necessarily,” he said, “A European reinsurance for national deposit insurance schemes should not redistribute business opportunities in the market to the advantage or disadvantage of some market participants.”

Other issues to be resolved include the regulatory treatment of sovereign debt, crisis management, and the free flow of capital and liquidity within European banking groups, Toncar noted.

“The respective interests of each member state are very demanding, so it's really a difficult task to bring this together. But I think if it shall be feasible, then probably only as a balanced and comprehensive package rather than as a sequential approach."
MNI London Bureau | +44 20 3983 7894 |
MNI London Bureau | +44 20 3983 7894 |

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