Only a few countries still adhere to the EU rules on debt. So a reform is needed, and this is where it gets complicated. Because the goals that the member states are pursuing differ significantly.
Christian Lindner from the FDP was the first of the 27 European finance ministers to express his skepticism directly and more or less openly: What the EU Commission is proposing to reform the debt rules in Europe is going not. You need improvements, adjustments, more commitment, but above all: common guidelines that everyone has to adhere to instead of, as he put it, a bilateralization of the guidelines.
Bilatization is a word that doesn’t really exist, but it makes it clear what it’s about: The Commission wants to move away from the previously applicable principle that every state in the EU never accumulates more than 60 percent of its economic output in debt and that the annual new debt does not exceed three percent of the gross domestic product.
That was actually what was laid down in the 1997 Treaty of Amsterdam. The values also applied to the so-called “convergence criteria”: Only countries that permanently met these criteria should be able to get the euro.
Far from reality now?
In the meantime, many member states, many members of the European Parliament and also the EU Commission consider all this to be outdated, one could also say unrealistic. France’s Finance Minister Bruno Le Maire has been insisting for years on a reform that would give the individual countries more leeway in reducing their debt. EU Economic Commissioner Paolo Gentiloni from Italy sees it very similarly.
That’s no wonder either, according to liberal and conservative members of the European Parliament, since France and Italy are among the countries that have accumulated particularly high debts. So it was only logical that they wanted less strict rules for budgetary discipline.
Who has the most debt?
In fact, Italy’s debt level is a good 140 percent, France’s is 111 percent, and Greece is still the frontrunner when it comes to debt at over 170 percent, despite considerable progress in reducing the government deficit in recent years.
However, only a few smaller EU countries still comply with the stipulated 60 percent, including the Scandinavians, the Baltic States, the Netherlands and Romania. And even Germany breaks the mark – only with 66 percent, but still.
Debt rules only on paper
The trend has been observed for years, and has become increasingly clear since the corona pandemic: Europe’s debt rules actually only exist on paper. It was not for nothing that the Commission suspended them when the pandemic came. From the end of this year, however, they should apply again. From a Brussels point of view, of course, best reformed.
Even Valdis Dombrovskis, Vice President of the EU Commission, who is considered to be cool and cautious in terms of financial policy, wants that. And EU Commission President Ursula von der Leyen wants it too. She talks about the need for up-to-date debt rules that give states more financial leeway to reduce their deficits.
New, expensive tasks
The question of how Europe can finance climate neutrality should also be a crucial issue. In Germany alone, economic researchers calculate, this will cost an additional 40 billion euros a year. In some capitals, there are few alternatives to new debt in the face of such a challenge.
But the Commission does not want that either. After years of piling up additional deficits, Dombrovskis says that it is now absolutely necessary to move away from such a fiscal policy course, if only to contain inflation again. And the head of the European Central Bank, Christine Lagarde, has called on the EU states to pursue a neutral financial policy, which means that they should not destroy the price-dampening effect that the central bank wants to achieve with its monetary policy – through higher key interest rates – with additional and credit-financed government spending.
contradictory Interests
So it’s all a very complicated situation: some would prefer to spend even more money on credit, others at least don’t want to suddenly stop doing so and reduce their national deficit at the expense of their economic growth, and still others, Germany in particular, want budgetary discipline right now with binding rules for everyone.
The Brussels Commission is trying to find a middle ground. She wants to define a plan for binding debt reduction for each country as individually as possible so that no EU state is overwhelmed, and if necessary she wants to give the capitals significantly more time to do so.
In the end, however, the following still applies: the debts have to go down. That is why the target values of 60 and 3 percent remain.
Rule violations without consequences
The Federal Minister of Finance may consider this plan to be not very transparent and too non-binding. Hardly anyone in Brussels believes that the debt rules will ultimately not be reformed at all. After all, many states have not adhered to it for years – and therefore there have never really been any serious consequences.
And rules that are only on paper, nobody really needs them. This is what the finance ministers will be talking about today and tomorrow, in chilly Stockholm. Very few will stay cool.