Brussels – The French Finance Minister Bruno Le Maire states that around the table “there’s a 90 percent agreement on broad outlines” for the new stability pact, and the Spanish presidency keeps repeating that “we are close” to an agreement. But what little is missing risks impacting the work needed to equip Europe and its eurozone with new rules on public accounts. Economy and finance ministers begin consultations today (Dec. 7), and the goal is to go ahead “as long as necessary” to reach an agreement, or at least try to, at tomorrow’s (Dec. 8) formal meeting. Translated, it promises to be an all-nighter.
France comes to negotiations with demands for debt flexibility. Paris says it agrees with the European Commission’s proposal of a structural budget adjustment per year of 0.5 percent of Gross Domestic Product for countries with excessive imbalances but asks for a 0.2 percent “rebate” if investments are made in priority fields (green transition, digital transition, defense).
“As of 2024, more than 10 states will be in excessive deficit procedure” for a deficit-to-GDP ratio above 3 percent,” Le Maire reminds. They are Belgium, Bulgaria, France, Italy, Malta, Poland, Romania, Slovakia, Slovenia, Spain, and Hungary. “We accept the clause of 0.5 percent yearly structural effort for those in the excessive deficit procedure, but we claim flexibility for states to invest, with an adjustment that takes into account the investments” made by these countries for the European Green Deal goals and the strengthening of the defense industry. “We don’t want these 10 countries in the excessive deficit procedure to be unable to invest for four years. It would be a political and economic mistake.”
But the crux lies in the numbers that Germany continues to demand. It’s about the parameters for keeping spending under control: Berlin insists on safeguards for the deficit. The 3 percent ceiling in the ratio to GDP, according to German intentions, should be lowered. A continuous and gradual structural adjustment is requested to get down to 1.5 percent so that there is room for maneuver should things get bad.
The German reasoning is as follows: in an economic downturn, spending means putting the public accounts in an unbalanced situation, exceeding ceilings and parameters. But if you already have room to maneuver, then spending in difficult times becomes possible because there is a margin already.
Then there is the issue of debt. For those countries with debt-to-GDP ratios above 90 percent (in 2024 this will be the case for Belgium, France, Greece, Italy, Portugal, and Spain) you would want a safeguard clause of a 1 percent yearly reduction over four years., a more sustainable clause than the so-called twentieth rule contained in the old stability pact currently still suspended. Under this rule, those who exceed the 60 percent benchmark must commit to reducing each year one-twentieth of the difference with the benchmark.
In the Italian case, whose expected debt in the coming year is 140.6 percent of GDP, the excess debt is 80 percent over the 60 percent benchmark. A twentieth of 80 percent is equivalent to reduction efforts of 4 percent per year. The 1 percent safeguard that Berlin does not mind would prove convenient for Rome, despite thinking otherwise in Rome.
The Spanish presidency attempts the feat of an agreement in principle overnight, even at the cost of dragging it a long time. Precisely because there is a sense that an agreement is close to being reached, an attempt is being made to strike a deal. “It’s important to try to seek an agreement, it’s a message of responsibility to markets and citizens,” says Economy Commissioner Paolo Gentiloni, who is also convinced that the right balance between fiscal consolidation and investment is needed. The French proposal for more flexibility, complete with numbers, could offer a way out. Negotiations permitting.
English version by the Translation Service of Withub
