MNI: Talks Turn Tough Ahead Of Dec 8 EU Fiscal Rules Meeting

Talks aimed at securing agreement on new European Union fiscal rules are getting tougher in the countdown to Friday’s crunch meeting of finance ministers, officials told MNI, with one saying the chances of a deal were just 50-50.

The European Commission is prioritising the search for a way of meeting German demands for a tougher line on countries violating rules on overall borrowing, with officials told to come up with calculations to show how a new more stringent compromise proposal for debt cuts might work in specific national cases before Friday.

While a Danish proposal for a deal, building on an earlier Spanish “landing zone”, seemed to win support among finance ministers, officials said German Finance Minister Christian Lindner was not happy with the idea that adjustment programmes would not require reductions in public debt until the end of their four-to-seven-year periods. Others of the so-called “frugal” countries agreed with Berlin, though one member of the group, Finland, facing recession and under a new government, may now find a revamped and stricter proposal too tough, officials said.

“The new Spanish landing zone showed some progress but countries now need to see some calculations on the new proposal for the debt rule,” one official said. (See MNI: Spain's EU Presidency Working On New Fiscal Rules Draft)

DISPUTE OVER DEFICIT DEFINITION

EU sherpas plan to talk again before Friday to discuss the Commission calculations.

France and Germany are also said to be far from agreement on how to define budget deficits, which are limited to 3% of GDP. While France wants the corrective arm of the Stability and Growth Pact to be activated based on a primary deficit calculation, Germany wants this defined in structural terms.

Asked for his best guess on chances for a rules deal this Friday, which would be crucial in order to have a new regime approved before mid-year European parliamentary elections, one official replied that the odds were 50-50.

“It’s possible, but the obstacles are not small. If Germany can be convinced it can be done,” the source said. “What Germany can’t accept is taking the primary balance as the basis for deficit reduction in the corrective arm, but that is what the French want, and we don’t know what the solution to that can be. This is one obstacle where no-one has come up with even a theoretical Landing Zone.”

Another EU official agreed on the general outlook.
“Positions have not come close enough for a compromise, so a landing zone this week at Ecofin seems quite difficult to achieve,’ another EU official said, adding that the treatment of defence spending was also coming up as a bargaining chip in the negotiations.

High-debt states, notably Italy and Belgium, also continue to push to make it easier to qualify for debt-adjustment paths of seven rather than four years. Germany and the frugal states have made it clear that they will not accept an automatic extension based solely on the reforms and investments in countries’ already-existing Recovery and Resilience Plans, though they concede that it may be unrealistic to come up with new reform commitments by the start of 2025.

“There, we are at least discussing solutions,” the source said.“There is a general mood to compromise, but states do have real boundaries they won’t cross.”