Public finances

The battle to soften EU deficit rules begins

Eurozone ministers begin debate on future of post-pandemic debt and deficit limits

2 min
The President of the Eurogroup, Paschal Donohoe, and the Commissioner for Economic Affairs, Paolo Gentiloni.

BrusselsOptimism pervades Europe's leading economic indicators and institutions. This week the European Central Bank (ECB) has announced that it is beginning to withdraw the emergency stimuli it put in place at the start of the pandemic, and so the end of 2021 is starting to be considered the end of the crisis. However, the urgency of opening a debate affecting the heart of the functioning of the European Union is being felt. Coronavirus has blown away Europe's deficit and debt rules, which are fiercely defended by the fiercely defended by the frugal Nordic countries but this exceptionality will not last forever. The suspension is temporary, until 2023. The question is to what extent it is realistic to return to rules that set the deficit limit at 3% and debt at 60% of GDP when the Eurozone currently has a deficit that exceeds 7% and a debt that is close to 100%. With recovery on the horizon, the political debate is also beginning between those who want to seize the moment to soften these rules and those who are more reluctant to change them.

Eurozone Finance ministers have met informally in Slovenia this Friday and have begun to test the waters for a debate European sources expect to be longer and tougher than countries like Spain would like. "I hope that in any case we get new rules, which are appropriate, before we leave this extraordinary situation, this extraordinary framework that we have agreed to respond adequately to the needs of the pandemic," said Vice President Nadia Calviño on Friday when arriving at the meeting.

Spain, which always has one of the highest deficits and debts in Europe, advocates making them more flexible - it already did before the pandemic - and argues that we must address the reform of the rules before they are brought back in. But there is not enough consensus. Ahead of the meeting, eight EU governments, led by the Netherlands, Denmark and Austria, have set out their red lines in a letter ahead of the Eurogroup and Ecofin meetings this Friday and Saturday. They ask the revision of rules to be kept separate from their reactivation. They warn that the discussion will go on for a long time and, although they are open to discuss "improvements" - specifically "simplifications and adaptations" - they stress that the financial sustainability of the EU as a whole must never be put at risk.

In this debate, France is Spain's side, as are other countries such as Italy. As always, the position adopted by Germany, now in the midst of an election campaign, will be key and, in fact, may be decisive for the outcome of this debate that was reopened this weekend. Brussels will activate a public consultation on this issue within 15 days. This Friday, the Commissioner for Finance, Paolo Gentiloni, admitted that "quality is more important than speed" but also stressed that "we must find ways to manage the situation without waiting for the clause to expire". Gentiloni is aware that the challenge is to achieve a consensus that brings together, once again, the north and south of Europe.