Free Trial



(Corrects job title, in second paragraph)

European Union rules on public borrowing could be loosened without revising EU treaties, a top European Commission official told MNI, though he cautioned that a bold reshaping of the Stability and Growth Pact will only be possible if member states meet reform commitments under the EUR800 billion NextGenerationEU plan to rebuild the economy after Covid.

The EU's review of its economic governance framework will provide an opportunity to overhaul the SGP, Marco Buti, head of cabinet for the Commissioner for the Economy, said in an interview, in which he also called for coordination with the European Central Bank's own strategy review in order to ensure fiscal and monetary policy work in harmony.

There is a "vast consensus" that the SGP must be reformed, said Buti, though his comments came after Armin Laschet, front-runner to be Germany's next chancellor, called last month for European budget rules as outlined in the Maastricht Treaty to be reinstated once the pandemic crisis is over. The SGP, whose legal basis comes from articles in the Treaty on the Functioning of the European Union, limits debt to 60% of gross domestic product, restricts annual deficits and stipulates the speed at which excess debt must be reduced.

"Nobody realistically thinks of changing the treaties, primary legislation is there to stay," said Buti. "So I think when we come to the autumn we will have to see in the restart of the review what can be achieved by working on a code of conduct and the soft law, or what one could do, if needed, by changing the secondary legislation."


This will depend on countries keeping commitments made in national recovery and resilience plans in order to secure NextGenEU cash, he stressed.

"You can be bolder if you have mutual trust. A credible implementation of the RRPs will be key to build trust and hence will have favorable spillovers onto such a debate," Buti said. "There is a vast consensus that one cannot go back sic et simpliciter to the previous rules as if nothing happened, so there will be a reassessment to be done."

Buti repeated a call by European Commissioner for Economy Paolo Gentiloni for the review of the EU's economic governance to be addressed in synch with the ECB's review of its monetary policy strategy, which will see a revamped inflation target.

"When we come to the completion of the two reviews in autumn we will have to make sure that the two are structured in a way that, while remaining independent exercises, they are actually conducive to a congruent policy mix," Buti said. "We did not see that during the financial crisis, but we did see it in this crisis, and that has underpinned the policy response from the very beginning and been key to avoiding financial fragmentation."


The escape clause which has excused member states from SGP rules during the Covid crisis should be deactivated in 2023, and very high levels of public debt will have to be reduced only gradually, he said.

"This I think can be achieved not by resorting to austerity but with prudent fiscal behaviour. However, due to the lower nominal GDP growth, it is going to be very difficult to comply literally with the debt rule as it is currently defined."

NextGenEU's first pre-financing payments are likely to be disbursed before the summer recess begins in late July, he said, adding that the Commission will go to the markets again this month, after raising an initial EUR35 billion in June.

In contrast to the years following the Lehman crisis, richer countries have not accused less financially robust countries of fiscal fecklessness, Buti said, adding that this could change if recovery plan promises are not met.

"The allegation of moral hazard typical of several northern countries was not there, due to the nature of the crisis, and has not been there so far. But should delivery not come, then it will come back with a vengeance," Buti said.

MNI London Bureau | +44 20 3983 7894 |
MNI London Bureau | +44 20 3983 7894 |

To read the full story



MNI is the leading provider

of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.

Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.