MNI: Talks On EU Debt Rule Overhaul To Gain Momentum In March

Eurozone finance ministers will set out radically differing proposals for overhauling European Union rules on public borrowing in Brussels on Monday, in what is set to be the first of a long series of monthly meetings which should gain by momentum by March and which even optimists expect to yield no more than agreement on common principles for reform by the end of next year, officials told MNI.

With traditionally fiscally austere countries of northern Europe ready to resist well-established southern proposals including calls for more time to reverse overshoots of borrowing limits, next week's meeting is likely to focus more on process than substance ahead of what will be drawn-out and difficult talks.

The best-case scenario is that member states reach an understanding on common principles by June-July 2022, allowing the Commission to make an official proposal for reform of the fiscal regime that can be agreed by states and the European Parliament before Jan. 1, 2023, when Stability and Growth Pact rules are set to be reactivated. Any radical reform of the rules, requiring EU legislation, will be impossible before the end of 2022, officials said.

"You have positions that are quite entrenched and radically opposed. It's going to be about bringing all member states around a common stance and that is going to require a lot of effort and a lot of goodwill," one source said.

The EU is expected to produce an "issues note" before the end of this week to guide the discussion in coming months. This will highlight themes including debt-reduction rules, how to encourage green investment while ensuring sustainability of public finances, and the question of enforcement, though these are likely to evolve as the conversation gets underway.

KEY MEETING IN MARCH

"In coming months, the discussion will be focused on the economy and on what might be a reasonable approach and identifying some elements around which we can converge," the source said.

In the interim, the EU will need to pass judgement on member states' 2022 budgets in December this year, making it likely that some sense of the direction of travel on fiscal reform will need to be conveyed then. Member states will get more fiscal guidance in March.

"March is very important because that is when the Commission needs to advise member states on preparing their 2023 budgets, knowing that the Excessive Deficit Procedure could be reopened on the old basis," another source said, adding that this should prompt discussion on whether rules on debt should be loosened.

"There will be a really serious discussion happening by March on exactly what are the criteria, because if we open the EDP today you would have more than half of member states in the EDP, because we are way above the 3% deficit/GDP threshold," the source said.