MNI: EU's Officials Plan Debt Pact Review As Hawks Soften

European Economy Commissioner Paolo Gentiloni will visit Dublin on Monday for a meeting with Eurogroup President and Irish Finance Minister Paschal Donohoe as early signs emerge that fiscal hawks are open to possible compromise in an upcoming review of the bloc's borrowing rules, officials told MNI.

While the publication date of a Commission consultation paper meant to launch the review of the Stability and Growth Pact setting limits for budget deficits and national indebtedness has yet to be revealed, Eurozone finance ministers plan to discuss it on Nov. 8, and the meeting between Gentiloni and Donohoe could provide clues on the timing, one official said.

The Commission's paper will be very open, without favouring particular options, one official said, after European Commission President Ursula von der Leyen's call this morning for a consensus on SGP rules to be reached "well ahead" of 2023 prompted scepticism from finance officials across the EU.

The review is expected to start after the German election later in September, though officials have earlier told MNI talks could last until the end of 2022 or longer. (See MNI: EU Debt Pact Review To Resume After German Elections)

The well ahead" comment was most likely meant as a political aspiration rather than a realistic timetable, given the complexity of the looming fiscal discussion, said one source, while another national official said talks would see a trade-off between ambition and speed.

"I think it's a factual statement of the process. Whether there can be a consensus before 2023 will very much depend on the proposals. If it's a radical proposal, there will probably not be a consensus. If it's fairly moderate, maybe."

HAWKS LESS HAWKISH

There are signs, though, of a growing acceptance of the need to loosen some of the rules on public debt, which has ballooned during the Covid pandemic.

One long-time fiscal hawk, Commission Vice President Valdis Dombrovskis, conceded after an EU finance ministers' meeting in Llubjana at the weekend that a balance had to be struck between the need for debt reduction and being realistic about what was possible.

Changing the rule under which states exceeding the SGP's 60% of GDP limit for debt must have reduced the differential by 1/20 a year over the preceding three years will not require politically challenging legislative changes, officials noted.

The 1/20 rule is contained in the EU's Stability Pact Vade Mecum, a manual on how the SGP is implemented and how to compile national stability plans.

"That would be my guess – no change of either the Treaty or the Protocols - but maybe the Code of Conduct and the Vade Mecum to the SGP," one national official said.

One EU official stressed that the current level of consensus between member states on key fiscal questions, like debt reduction, is often underestimated:

"With Greece at 200% [public debt/GDP] and Italy at 140%, everyone agrees it's all about being pragmatic, about not killing growth," the source said. "Fiscal hawks underline debt sustainability, but that doesn't mean rushing into austerity policies that would kill any long-term recovery."

A promise to return to the main SGP rules in the longer-term might placate hawks, allowing for compromise, some sources said.

"At the ECOFIN there was a bit of a discussion, nothing very concrete, but you could see an idea of transition emerging - basically we need to transition from no rules at all to going back to old fiscal rules," one said. "Some could agree some changes in short term, provided long term they get something else."