Under a Liberal-led finance ministry, Germany will take a hard line on EU fiscal policy and reject calls from southern EU countries to relax fiscal rules. However, the business-friendly FDP is open to compromise. EURACTIV Germany reports.
While the EU’s southern countries insist on making the fiscal rules
more flexible and relaxing, Germany is reserved concerning the reform of
the Stability and Growth Pact – the EU’s most important financial
instrument for monitoring state budgets.
“The Stability and Growth Pact has already proven its flexibility,”
stressed Otto Fricke, member of the Bundestag and budgetary policy
spokesman for the FDP, referring to the short-term suspension of the
rules during the COVID-19 crisis.
Nicola Beer, who had co-negotiated the European chapter of the
coalition agreement for the FDP, announced a rather adamant party
position regarding negotiations of the Stability and Growth Pact.
“The finance ministry, under the leadership of the FDP, will advocate
sound budgets and fiscal rules at the European level. It will aim to
make the Stability and Growth Pact more assertive,” she told EURACTIV.
Fricke and Beer emphasised that the rules on national debt should not
be changed. This means Eurozone members will have to reduce their debt
level to 60% and cut the annual deficit to a maximum of 3% of GDP.
Instead, fiscal rules should become “leaner and clearer.”
Disregarding the fiscal rules should entail automatic consequences if
possible and “not be left to political calculation,” FDP budget expert
Fricke told EURACTIV.
“A bad signal for Europe”
These strict budget rules are now considered obsolete by many governments.
Over the past 20 years, Italy, for example, has run a primary surplus
almost every year, but its national debt has grown, now accounting for
155% of its GDP. If the EU sticks to the current rules, countries in the
bloc would have to bring debt down to 60% within 20 years.
“Italy, too, must reduce its debt ratio to 60% within 20 years,” Beer
confirmed the FDP position, adding that at most, one could be flexible
in the modelling of the reduction path. “The debt reduction does not
necessarily have to be linear,” she said.
Experts warn that insisting on these strict regulations would
negatively impact not only the Southern member states but also the
entire Eurozone.
Magnus Schoeller, a researcher at the Centre for European Integration
Research at the University of Vienna, spoke of a “bad signal for
Europe”.
“There is a broad international consensus that this strict
interpretation of fiscal rules could have a massive negative impact on
economic growth in the structurally weaker Eurozone countries,”
Schoeller told EURACTIV.
This could subsequently trigger a recession, or even deflation, in
the southern states, “which could also put the Eurozone as a whole at
risk”, Schoeller continued.
Instead, Schoeller argued that a balancing mechanism between the
export-oriented, highly competitive states and the southern countries of
the Eurozone would be needed to ensure longer-term stability in the
Eurozone.
Room for compromise
However, it remains to be seen whether the FDP-led finance ministry will be serious with its announcements.
“It is possible that they will play a little poker here and that the
FDP might, in the end, be less strict than they announced,” Schoeller
continued.
The coalition agreement leaves open the option of reforming the
Stability and Growth Pact. According to the coalition agreement, reform
must be oriented towards four goals: It should enable growth, debt
sustainability, investment, and simpler enforcement.
Max Krahé, research director of the think tank Dezernat Zukunft, is cautiously optimistic.
“It is still open how the new government will position itself in the
discussion on fiscal rules. It seems that they want to talk openly and
constructively about the rules,” Krahé told EURACTIV.
In his opinion, much will depend on mutual trust between the German
government and the governments of the other member states. “The
coalition agreement is an offer to talk,” he stressed.
Although the FDP is sticking to the general rules on new debt, Fricke sees a potential compromise in some areas.
“I can imagine that for investments that are really directed towards
the future – for example, in digital infrastructure – the 3% rule could
be exceeded for a limited period of time,” said the FDP politician.
EURACTIV
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