MNI: EU Fiscal Rules Reform Unlikely During Spanish Presidency

The Spanish government sees little chance that the European Union’s already-delayed reform of its fiscal rules will be agreed during its June-December presidency of the bloc, officials told MNI, increasing the chances that the existing Stability and Growth Pact will come back into force next year and put pressure on budgets throughout the EU.

The current Swedish presidency, which looks set to fail in its drive to push through reform of the rules in the Stability and Growth Pact, has missed a perfect opportunity for an agreement, given Sweden’s status as a northern country but one not so insistent on fiscal discipline as the rest of the so-called “frugal” group, Spanish officials said.

As of June, given Spain’s clear interest in obtaining favourable treatment for its own fiscal situation, any excessive effort directed at passing the reform during its presidency would be perceived as putting its national interest ahead of that of the bloc as a whole, the officials said.

“The ideal would have been a small country, not seen as an interested party,” one of the sources said, “Our hands will be pretty much tied.”

Spain’s governing left-wing coalition will also be distracted both by regional elections in May, during the run-up to its presidency, and then by what look like being close-run general elections in November or December, officials noted.

Any progress made towards overhauling the pact will have to be made by member states rather than by the rotating presidency itself, the officials said, adding that Spain will focus instead on trying to seal the long-stalled trade deal between the EU and Mercosur. The prospect that Madrid will make no special effort to pass the fiscal reform further increases the chances that the old Stability and Growth Pact rules, currently suspended due to the economic impacts of Covid and the war in Ukraine, will come back into force on schedule next year. (See MNI:Frugal Fury At EU Guidance Endangers Pact Reform-Officials)

CALENDAR COMPLICATIONS

Talks on reform have bogged down amid disagreements between the “frugals”, who reject European Commission proposals for a more flexible approach to reducing public debt in high-debt states, and other countries which want new rules in place in time for them to avoid potentially big cuts to 2024 national budgets.

Any delay beyond the Spanish presidency would push out the earliest plausible timetable for approval of reform until the summer or autumn of 2024, given that elections to the European parliament in May will make progress difficult in the first half of the year, an EU source said.

Spanish Prime Minister Pedro Sanchez has already started a tour of the 27 EU capitals ahead of his nation’s turn in the presidency and will see Italy’s Giorgia Meloni in Rome on April 4, sources from both the Spanish and Italian government told MNI. Topics will include the EU’s fiscal rules, with both leaders supporting the Commission’s proposals.

“The SGP reform is absolutely crucial for us, and the collaboration with Spain has been fantastic,” said a source in the Italian finance ministry, noting that without new EU guidelines this year, preparing Italy’s 2024 budget will be challenging, given the question marks over how long the old rules will continue to be enforced.

For their part, Spanish officials said their relationship with Meloni has been good so far despite her far right background and that they had been positively surprised by her constructive approach towards European institutions. But Sanchez, whose Socialist Party will compete in elections against its far-left coalition partner Podemos, is not keen to give the visit a high profile