12 November 2021

POLITICO: Brussels’ deep state takes control over the EU’s deficit rule debate

The European Commission kick-started a public debate Friday on how best to reform the EU’s rules for public spending. But much of the script has already been written — and the rest will be filled in behind closed doors.

The rules, known as the Stability and Growth Pact (SGP), have been on ice during the pandemic to ensure governments can contain the virus and keep their economies afloat without fearing punishment from Brussels. This special dispensation will end in 2023, leaving capitals with a ticking time bomb on their laps.

Without change, the SGP will cap governments’ budget deficits to 3 percent of economic output and require them to reduce public debt to 60 percent. That would be a death knell for public investment in many indebted Southern governments, as well as a major constraint for all governments trying to transition their economies to a zero-emissions future.

These are the challenges embedded in the Brussels work plan, which five senior officials in the Commission and the Council discussed with POLITICO on the condition of anonymity. It includes fixed dates for debate, tentative legislative proposals and hedges against political deadlock.

This effort will run in tandem with the Commission’s public debates — complete with academics, central bankers and policymakers, stretching into early next year — but these are more for show than substance. The real work will be handled in dozens of meetings that will run until July at the technical and political level, behind closed doors, according to two draft agendas obtained by POLITICO.

Commission officials have already earmarked which parts of the SGP should change to ensure governments can keep on financing their high debts while investing in green projects. The trick is bringing skeptical governments on board while making sure that time bomb doesn’t go off in 2023. There’s also the risk that this strategy won’t work — to the detriment of the eurozone.

“Reaching a consensus on the fiscal and economic framework in the post-COVID era is crucial for the future of the euro, but also for the EU as a whole,” the Commission’s economy chief, Paolo Gentiloni, told reporters last week, after eurozone finance ministers delivered their opening gambit on the reform in Brussels, away from the public eye.

“I would like to avoid that this review be seen as just another chapter in a very long book of debates on the Stability and Growth Pact, in which established positions are stated and restated,” he said.

He was referring to the heart of the SGP’s controversy — a deep mistrust among Northern capitals that the South can't handle its public finances. That mistrust festered after the 2008 financial meltdown and worsened after the ensuing sovereign debt crisis almost broke the eurozone...

much more at POLITICO

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