MNI INTERVIEW2: Fiscal Rules Deal Key For Confidence-Donohoe

The European Union needs to conclude drawn-out talks and reach agreement on new fiscal rules by the end of this year for the sake of market confidence, Eurogroup President Paschal Donohoe told MNI.

“For me the importance really is more about the medium term. It’s beyond where we will be in 2024. The greater confidence there is about where we want our budget policies to land in few years’ time, the easier it is for ministers to decide what they should do next year,” Donohoe said in an interview. “Also, from the financial market perspective I know the confidence that the financial markets have in where we want to get to beyond the medium term can only help in building confidence in the Euro Area.”

Talks on reforming the rules on borrowing contained in the Stability and Growth Pact have proven difficult, with so-called “frugal” countries pushing back against European Commission proposals to give itself more leeway in setting targets for member states in breach of the limits. (See MNI:Frugals Open To EU Debt Compromise, Spanish Presidency Key)

Asked if he thought the fiscal discussions at Eurogroup would have gone better if the new fiscal rulebook had already been in place, Donohoe said the need to combat high inflation would have made it essential to bring down high levels of borrowing regardless. (See MNI INTERVIEW: Eurozone Fiscal Policy To Support ECB-Donohoe)

BANKING UNION

Donohoe has been dogged in his efforts to make progress on deepening the Banking Union, but he admitted that no progress will be made unless Italy ratifies changes to the European Stability Mechanism Treaty in the coming months and the EU agrees its new Crisis Management legislation (CMDI) before European parliamentary elections next summer.

“We will only get to the point of reconsidering the other big projects of Banking Union if we actually deliver what’s in front of us and it’s very hard to see how we can make progress on other big projects of Banking Union if we don’t have the ESM treaty ratified and if we don’t deliver on the CMDI package,” said Donohoe, who is also Ireland’s Minister for Public Expenditure, National Development Plan Delivery and Reform. “For me my focus for now is the ESM treaty and the CMDI package. In order to engage on other projects, we have to take that step first.”

While the Italian Parliament recently pushed back its scheduled debate and vote on the ratification of the ESM Treaty to November, Donohoe said he remained “hopeful” and would continue to work closely with Italian Finance Minister Giancarlo Giorgetti.

Donohoe said he was not worried about the prospects for financial market stability as the ECB begins the process of winding down its balance sheet and selling off its stock of government bonds.

“If anything, the last few years have shown the political determination that is there to protect the robustness of our currency and the Euro Area in any circumstance,” he said.