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BRUSSELS — The European Commission’s proposal to reform government spending rules is only a few hours old yet it’s already been met with a chorus of complaints.
For Germany it is too soft, despite having won some concessions. Governments in the EU’s south complain it is too strict. Others think Berlin has been listened to too much.
For it’s part, the Commission reckons it’s well balanced.
What’s clear is it’s going to be fiendishly difficult to get an agreement between all 27 EU countries before Europeans go to the polls in about a year’s time.
No one is happy. But then again, that was expected.
“If I told you that we were expecting something really easy and that it was going to be a walk in the park, you wouldn’t believe me, right?” a French official said, speaking on condition of anonymity in line with policy.
The proposed reform of the Stability and Growth Pact aims to give EU countries more leeway in determining the pace at which they must reduce debt to below 60 percent of their GDP, and keep annual deficits to below 3 percent.
It does so by setting country-specific debt reduction paths over a number of years in negotiations between the Commission and European capitals — supplanting a stricter but seldom applied rule requiring all countries with excess debt to slash it by 5 percent per year.
“We need fiscal rules that are fit for the challenges of this decade. The new rules will help reduce high public debt levels in a realistic, gradual and sustained manner,” Commission President Ursula von der Leyen said in a statement.
Germany and a number of other countries, afraid that capitals will cut bilateral deals with Brussels, asked for stricter universal rules.
To assuage these concerns, the Commission added last-minute safeguards: countries can’t spend more than their expected GDP growth, budget cuts can’t be kicked back, debts must decline within a four-year horizon, and if countries breach the 3 percent annual deficit threshold, they have to slash expenditure by 0.5 percent of GDP per year.
“The result is very balanced. I don’t know exactly what should have won the consensus of this country or another country, I think these changes that we decided are minor changes, fundamentally we are coherent” with the reform’s original intent, EU Economy Commissioner Paolo Gentiloni told POLITICO.
German influence
Yet these tweaks left other capitals complaining about Germany’s sway over the Commission, arguing they go against the grain of the reform.
French Finance Minister Bruno Le Maire described the proposals as “a step in the right direction,” but criticized some points, such as the 0.5 percent of GDP reduction in spending obligation as “contrary to the spirit of the reform,”
And Berlin seems dissatisfied with the concessions it managed to extract.
“Germany wants clear rules, with numerical references and benchmarks,” Finance Minister Christian Lindner said. “We still have a lot of work to do.”
The German government has called for the reduction of debt-to-GDP ratios by 1 percent per year. But the Commission argues this would require draconian budget cuts, dooming countries to a self-feeding cycle of austerity and recession.
“That would lead to fiscal adjustment that would be so big that it would actually be self-defeating,” said an EU official, speaking on condition of anonymity because the negotiations will be confidential.
Even the Netherlands, a country that often sides with Germany in economic matters, agrees with the Commission.
While supporting the general idea of safeguards, “a mandatory fixed minimum annual debt reduction for all countries and in all circumstances does not seem to relate well” to the goals of the reform, Finance Minister Sigrid Kaag wrote to the Dutch parliament.
While Lindner’s remarks are an opening salvo and don’t fully reflect the view of the German coalition, it makes for difficult talks ahead.
“What was important for me was always having Germany engaged in this discussion. I have always been aware of the fact that they have different views, and this is true also for other member states that have different views” Gentiloni said. “I’m relatively confident that we can bridge the differences.”
Giorgio Leali contributed to this report from Paris.
