MNI SOURCES: EU Near Certain To Extend Debt Rule Escape Clause

The European Union is almost certain to further extend the general escape clause temporarily exempting member states from rules on debt included in the Stability and Growth Pact as economic uncertainty grows, officials in Brussels told MNI.

EU countries not only face the cost of shielding businesses and consumers from rising energy prices, but are also likely to have to urgently boost defence spending, at the same time as sustaining high levels of public investment in the green and digital transitions, officials noted.

While longer-term talks continue on boosting joint bond issuance and relaxing fiscal rules, an extension of the escape clause would be the easiest and most immediate move, officials said.

“All of these elements are linked to each other, but the one that is really straightforward to do – because that is already part of the environment we have been operating in for the last few years - is just to extend the General Escape Clause, then we buy another year to take decisions,” one said.

SAFEST OPTION

Given the high degree of uncertainty over the war in Ukraine and its economic impact on the EU, going back to fiscal rules in 2023 would probably pose greater risks than maintaining maximum flexibility for another year, another noted.

Officials said they expect a decision to be taken by the Commission following its Spring Forecasts, which are due on May 16 and that it could be confirmed by EU finance ministers at their meeting May 23-24.

An extension would have the further advantage of allowing more time for difficult discussions on the shape of a future EU fiscal surveillance regime.

“The situation is such a big question mark that it would probably make sense to extend the escape clause for one more year. If we decide not to, then we would need to reapply the fiscal rules, raising the question of how to apply them. That would mean rushing the discussion on the Stability and Growth Pact and I don’t think this is the right moment to have that discussion, given the current mess,” one source said.