**The EU Commission has launched a fundamental debate on the controversial Stability Pact. Some countries are pushing for more lax rules, others are calling for tighter ones – and everyone is waiting to see what Germany’s position will be.**
The EU Commission’s discussion paper has only 19 pages, and it does without concrete proposals. Nevertheless, it will trigger a heated debate, after all, it is about the always embattled Stability and Growth Pact, the rules for sound budget management in the EU. Some governments find the rules too tough, some too lax. It remains to be seen how the new federal government will position itself. Despite this difficult starting position, the Commission launched a reform process on Tuesday: it published the paper and is now seeking opinions from governments, parliaments and associations – citizens can also submit their views online.
Next year, presumably after the French presidential elections, the authority will then submit proposals for amendments. Among the ideas already put forward by governments and economists are, for example, treating green investments more leniently when calculating budget deficits or giving states individual paths for paying off mountains of debt.
The Commission started a debate on the future of the pact as early as February 2020, but immediately abandoned it because of the pandemic. At the same time, the authority suspended the Stability Pact for the first time so that member states could incur unlimited debt during the Corona crisis. In the course of the coming year, however, all 27 EU countries will have returned to their pre-crisis economic performance. Therefore, the rules will probably come into force again at the beginning of 2023. Then, governments would again have to adhere to the limit for the annual budget deficit of three percent of economic output and aim for a debt ratio of 60 percent of economic output.
(Graphic table)
National debt as a percentage of annual economic output
(Left) Euro countries (Right) Forecast for 2022
However, after the pandemic, only seven of the 19 euro countries will fall below this 60 per cent. Four others – Portugal, Spain, France and Belgium – will have debt levels about twice as high as allowed; Greece and Italy are even at 202 and 157 percent. So far, the Stability Pact stipulates that these sinners should return to 60 per cent within 20 years. Thus, Italy would have to reduce its debt level by four to five percentage points every year, which is completely illusory. Therefore, this target will certainly be a topic in the upcoming debate, said Commission Vice-President Valdis Dombrovskis, who is responsible for economic affairs, in an interview with the SZ and international media. What is needed, he said, is “a moderate and growth-friendly path” to debt reduction.
“The rules are too complicated”
The former Latvian prime minister makes it clear, however, that the Commission is unlikely to suggest raising the 60 per cent and three per cent targets. For that, the EU treaties would have to be laboriously amended, and he does not expect a proposal in that direction: “You can adjust a lot of things in the rulebook without changing the treaties.” The Commission then has the choice of proposing legislative changes or just adapting its own rules of application for the Stability Pact. A legislative procedure would take longer because of the usual involvement of the EU Parliament and the Council of Ministers. Dombrovskis warns that in that case it would be “a challenge” to complete the reform by early 2023, when the pact is due to come back into force.
The Christian Democrat Commission vice-president also calls for simplifying the pact and using metrics that are more observable for assessing budgetary policy: for example, the level of government spending instead of macroeconomic concepts such as the output gap. “The rules are too complicated,” he says – and this assessment is likely to meet with broad agreement among EU governments.
In addition, the Commission raises the question in its debate paper whether the Stability Pact could not be modelled on the way member states and the Commission work together on the reconstruction programme. This new EU programme distributes the bulk of the billions from the Corona aid pot. Governments commit to reforms and investments, and the authority only releases the grant tranches when these projects have reached certain milestones.
**Scholz thinks changes are unnecessary, his party sees it differently**
Highly controversial is the idea of excluding investments in climate protection from the calculation of budget deficits in future. The Brussels think tank Bruegel has called for this in a study that was recently presented at a meeting of EU finance ministers. Among the supporters is France, among the opponents of new exceptions Austria. The Viennese Finance Minister Gernot Blümel, together with seven counterparts from EU countries for which budgetary discipline is traditionally important, has drafted a position paper in which they already warn against a softening of the Pact.
The Commission’s discussion paper puts the necessary investments by the state and businesses in climate protection and digitisation at 650 billion euros a year by 2030. Dombrovskis says it is “about squaring the circle: How can governments make the necessary investments while gradually reducing debt?” He urges to be “pragmatic and realistic” in the debate, because what is needed in the end is consensus among all EU governments.
It is unclear what Berlin’s position will be. As finance minister, Olaf Scholz has always stressed that the regulations do not need reform, as they proved sufficiently flexible during the pandemic – thanks to the possibility of suspension. The election manifesto of his SPD, however, says otherwise. It says that the regulations must be developed “into a sustainability pact”; instead of austerity programmes, investments must now be the order of the day. The Greens demand something similar. The FDP, on the other hand, warns against a softening of the rules.
The exploratory paper with which the SPD, FDP and Greens are preparing their coalition negotiations attempts the balancing act: the pact has proven its flexibility, it says, and on its basis the government wants to “maintain debt sustainability and ensure sustainable and climate-friendly investments”. What this means in concrete terms will soon have to be proven – in the arduous debates that lie ahead in Brussels.
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**The EU Commission has launched a fundamental debate on the controversial Stability Pact. Some countries are pushing for more lax rules, others are calling for tighter ones – and everyone is waiting to see what Germany’s position will be.**
The EU Commission’s discussion paper has only 19 pages, and it does without concrete proposals. Nevertheless, it will trigger a heated debate, after all, it is about the always embattled Stability and Growth Pact, the rules for sound budget management in the EU. Some governments find the rules too tough, some too lax. It remains to be seen how the new federal government will position itself. Despite this difficult starting position, the Commission launched a reform process on Tuesday: it published the paper and is now seeking opinions from governments, parliaments and associations – citizens can also submit their views online.
Next year, presumably after the French presidential elections, the authority will then submit proposals for amendments. Among the ideas already put forward by governments and economists are, for example, treating green investments more leniently when calculating budget deficits or giving states individual paths for paying off mountains of debt.
The Commission started a debate on the future of the pact as early as February 2020, but immediately abandoned it because of the pandemic. At the same time, the authority suspended the Stability Pact for the first time so that member states could incur unlimited debt during the Corona crisis. In the course of the coming year, however, all 27 EU countries will have returned to their pre-crisis economic performance. Therefore, the rules will probably come into force again at the beginning of 2023. Then, governments would again have to adhere to the limit for the annual budget deficit of three percent of economic output and aim for a debt ratio of 60 percent of economic output.
(Graphic table)
National debt as a percentage of annual economic output
(Left) Euro countries (Right) Forecast for 2022
https://gfx.sueddeutsche.de/apps/e203356/www/_image_desktopw1840q70-dfe179fc7bc9918b.png
However, after the pandemic, only seven of the 19 euro countries will fall below this 60 per cent. Four others – Portugal, Spain, France and Belgium – will have debt levels about twice as high as allowed; Greece and Italy are even at 202 and 157 percent. So far, the Stability Pact stipulates that these sinners should return to 60 per cent within 20 years. Thus, Italy would have to reduce its debt level by four to five percentage points every year, which is completely illusory. Therefore, this target will certainly be a topic in the upcoming debate, said Commission Vice-President Valdis Dombrovskis, who is responsible for economic affairs, in an interview with the SZ and international media. What is needed, he said, is “a moderate and growth-friendly path” to debt reduction.
“The rules are too complicated”
The former Latvian prime minister makes it clear, however, that the Commission is unlikely to suggest raising the 60 per cent and three per cent targets. For that, the EU treaties would have to be laboriously amended, and he does not expect a proposal in that direction: “You can adjust a lot of things in the rulebook without changing the treaties.” The Commission then has the choice of proposing legislative changes or just adapting its own rules of application for the Stability Pact. A legislative procedure would take longer because of the usual involvement of the EU Parliament and the Council of Ministers. Dombrovskis warns that in that case it would be “a challenge” to complete the reform by early 2023, when the pact is due to come back into force.
The Christian Democrat Commission vice-president also calls for simplifying the pact and using metrics that are more observable for assessing budgetary policy: for example, the level of government spending instead of macroeconomic concepts such as the output gap. “The rules are too complicated,” he says – and this assessment is likely to meet with broad agreement among EU governments.
In addition, the Commission raises the question in its debate paper whether the Stability Pact could not be modelled on the way member states and the Commission work together on the reconstruction programme. This new EU programme distributes the bulk of the billions from the Corona aid pot. Governments commit to reforms and investments, and the authority only releases the grant tranches when these projects have reached certain milestones.
**Scholz thinks changes are unnecessary, his party sees it differently**
Highly controversial is the idea of excluding investments in climate protection from the calculation of budget deficits in future. The Brussels think tank Bruegel has called for this in a study that was recently presented at a meeting of EU finance ministers. Among the supporters is France, among the opponents of new exceptions Austria. The Viennese Finance Minister Gernot Blümel, together with seven counterparts from EU countries for which budgetary discipline is traditionally important, has drafted a position paper in which they already warn against a softening of the Pact.
The Commission’s discussion paper puts the necessary investments by the state and businesses in climate protection and digitisation at 650 billion euros a year by 2030. Dombrovskis says it is “about squaring the circle: How can governments make the necessary investments while gradually reducing debt?” He urges to be “pragmatic and realistic” in the debate, because what is needed in the end is consensus among all EU governments.
It is unclear what Berlin’s position will be. As finance minister, Olaf Scholz has always stressed that the regulations do not need reform, as they proved sufficiently flexible during the pandemic – thanks to the possibility of suspension. The election manifesto of his SPD, however, says otherwise. It says that the regulations must be developed “into a sustainability pact”; instead of austerity programmes, investments must now be the order of the day. The Greens demand something similar. The FDP, on the other hand, warns against a softening of the rules.
The exploratory paper with which the SPD, FDP and Greens are preparing their coalition negotiations attempts the balancing act: the pact has proven its flexibility, it says, and on its basis the government wants to “maintain debt sustainability and ensure sustainable and climate-friendly investments”. What this means in concrete terms will soon have to be proven – in the arduous debates that lie ahead in Brussels.
Translated with http://www.DeepL.com/Translator (free version)
Edit 19.10.21 19:45, added table explenation
EU socialism better than US , wealth could down leak bottom ， so I think the finical crisis negative effect will be lighter than US