MNI: Lagarde Urges Germany To Opt For 7YR Debt Plan- Sources
MNI (BRUSSELS) - European Central Bank President Christine Lagarde told Eurozone finance ministers at a meeting on Monday that fiscally conservative “frugal” states and Germany should opt for longer and more gentle seven-year fiscal consolidation plans under the European Union’s new rules, EU sources told MNI.
At the meeting, Lagarde referred to an article in the Financial Times by former ECB President Mario Draghi on Nov 1, in which he said that opting for fiscal consolidation plans for up to seven years could in principle unlock up to EUR700 billion in funds for the green transition and other investment, sources said.
The EU’s new fiscal rules also allow shorter, sharper four-year consolidation plans, but officials fear that implementing these in larger countries would increase the possibility of negative economic spillovers on more indebted countries such as France and Italy.
Germany is already considering a seven-year plan at the end of the month, MNI has reported, with one former senior EU official saying this would permit a neutral fiscal stance, with an adjustment of only around 0.1% per year. In contrast, a four-year plan would require tighter fiscal policy than that which would be needed under Germany’s constitutional debt brake rule, which restricts structural deficits to a 0.35% of GDP, EU officials said. (See MNI: Germany Looks At Gentler, Extended 7Y EU Debt Plan- Source)
So far Italy, France, Spain, Finland and Romania have submitted seven-year plans, while Belgium as another high-debt state is almost certain to go the same way.
According to an ECB study published in July, the EU requires EUR5.4 trillion in investment for the defence, green and digital transitions between now and 2030, with EUR4.1 trillion coming from the private sector and the remainder from public finances.
The study concluded that the seven-year plans would provide states with the needed fiscal space for this investment.