Updates to EU budget rules
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The EU will examine whether the rule for reducing its debt should be reviewed, given the increase in public debt burden during the Covid crisis, a senior Brussels policymaker said as the debate over the reform of the union’s controversial stability and growth pact begins to increase.
Valdis Dombrovskis, executive vice-president of the European Commission, said the EU would be concerned that the existing regime of the commission was not ‘realistic’, given the sharp rise in many member states’ debt-to-GDP ratios during causing the Covid-19 slump.
An forthcoming consultation of the commission will also be considered. calls for certain public investments to be granted a more favorable treatment under the debt and deficit rules, he said on Saturday.
Dombrovskis ‘words come as EU finance ministers prepare for a politically charged debate on whether and how to reform the union’s budgetary framework after member states’ lending skyrocketed during the pandemic.
The EU suspended its usual spending rules last year in response to the crisis, which has given member states more leeway to support their economies, but must be reintroduced in 2023.
On Saturday, EU finance ministers and policymakers in Slovenia held early talks on what to do about the labyrinthine and unpopular treaty.
The Commission and Member States approach the subject with caution, given the in-depth and long-standing sections between fiscally conservative states in the north, and capitals in the south they want to review.
Among the topics discussed in Slovenia was an EU rule requiring a 1/20 per year reduction in debt ratios of member states with debt above the EU ceiling of 60 percent of GDP.
Many capitals acknowledge that the rule will impose a too brutal retrenchment on some member states, given that the total public debt burden of the EU will rise to 94 per cent this year, and Italy is expected to reach a debt ratio of around 160 per cent.
Dombrovskis, who is seen as conservative on fiscal issues, said the debt rule had been raised during the discussions due to concerns that “it may not be realistic for high-debt countries, especially now after the crisis”.
He added: “We must therefore work on a debt rule that, on the one hand, ensures a reduction in public debt and, on the other hand, is realistic for all member states.”
Another reform discussed Saturday was the idea of removing green investment from the deficit rules in an effort to remove obstacles to massive public spending programs involved in the climate transition.
EU Economic Commissioner Paolo Gentiloni has repeatedly warned that the EU could not afford to repeat the aftermath of the last crisis, when public investment fell, as spending in the coming decade is needed. to speed up.
In a paper presented by the Bruegel brainstorm, it is said that achieving the EU climate goals will require an increase in the total green investment of about 2 percentage points of GDP annually, of which public investment is between 0, 5 percent and 1 percent of GDP.
French Finance Minister Bruno Le Maire said on Friday that given the ‘enormous climate challenge’ facing the EU, it was worth looking at the idea of exempting green investments from fiscal deficits. of the EU.
Dombrovskis confirmed that the idea of a ‘golden rule’ on investment would also be part of the commission’s consultation.
Saving ministers, however, are very skeptical of the idea, and they begin to destroy their arguments against far-reaching reforms of the Stability and Growth Pact.
In a paper distributed before the meetings outside Ljubljana, eight ministers said they were prepared to discuss ‘improvements’ to the rules, but made it clear that they were focusing on simplifying the rules and making them more transparent. .
Gernot Blümel, the Austrian finance minister who organized the joint paper, told the Financial Times that he was open to discussions about changes, but questioned the motivation of countries advocating green spending exemptions, saying he feared that they use the proposal as “an excuse for not complying with the necessary and reasonable rules.”
Dombrovskis stressed on Saturday that discussions at this stage about possible changes are still conceptual and that it is too early to say whether any legislative change is needed. It would be critical to build a political consensus around possible reforms, he added.
Earlier in the crisis, some policymakers argued that the stability and growth package should be rewritten before the EU resumes rules, but officials meeting on Saturday said it was unrealistic to expect new legislation to take effect soon. does not take into account the complexity of the impending debate.
As such, the commission may need to provide new guidance next year on how it wants to implement the unchanged rules in a way that paves the way for a gradual reduction in budget support rather than a sudden constraint.