EU finance ministers fail to progress on spending rule update

EU finance ministers met in Luxembourg on Friday (16 June) to discuss the proposed update of the bloc’s spending rules but failed to achieve any progress, with France and Germany still at odds over the reforms after the meeting.

Uniform rules contested by France and Germany

“The real point of disagreement is whether or not there should be automatic and uniform rules,” said French economy minister Bruno Le Maire. “Our answer is clearly no because we believe that would be an economic mistake and a political mistake.”

Europe’s past experience with uniform rules

Referring to the period of austerity that followed the 2008 crisis, he added that Europe had already “tried uniform rules” in the past. “This led to recession, economic hardship and low growth in Europe,” he said. “What we need now is more growth, prosperity and jobs.”

The existing rules and proposed changes

The existing rules require governments to cut debt above 60 percent of GDP by five percent per year. All deem this excessively stringent, and therefore the rules have never been applied. Yet countries fail to agree the old rules will come back into force in 2024.

Proposed by the EU Commission in April, the latest idea tried to balance demands for more flexibility with calls from ‘hawkish’ member states which want stricter debt reduction rules. As a compromise, the commission put forward a system that would commit member states above 3 percent annual deficit to a path of 0.5 percent debt reduction per year.

Countries also have an added four to seven year adjustment period, allowing them to buy time if additional investments go to areas considered European priorities such as defence or climate spending.

‘Uniform’ rules demanded by Lindner

But Lindner said rules need to be “uniform.”

“We need equal treatment; we need numerical benchmarks, and we need a common safeguard and not too much leeway for the Commission to negotiate bilaterally with member states,” said Lindner.

Support for uniform rules

In this he was supported by the Czech Republic, Austria, Bulgaria, Denmark, Croatia, Slovenia, Lithuania, Latvia, Estonia and Luxembourg.

The Netherlands takes a different tone

The Netherlands, which under the previous finance minister Wopke Hoekstra was considered a fiscal hawk, was notably absent from the hawkish group.

Dutch minister Sigrid Kaag has instead chosen a more conciliatory tone and even allied with her Spanish counterpart Nadia Calviño, with whom she published a joint proposal calling for tailored solutions instead of inflexible rules.

Lindner maintains stance on credibility

However, this has so far failed to convince Lindner.

“To maintain credibility vis-à-vis the capital markets,” he wrote in an op-ed published in German newspaper Die Welt ahead of the meeting.

“Member states must avoid excessive deficits and debt levels or reduce their deficits and debt ratios in a timely and sufficient manner in a realistic way,” he added.