07 July 2022

FT: French finance minister says EU debt rules are ‘obsolete’

EU debt rules for member states are “obsolete” and should be rethought to reflect the costs of pandemic, war and rising inflation, France’s finance minister has warned. Bruno Le Maire said a “new economic model” was emerging in Europe as public spending ballooned and said any contrast between “frugal” northern EU member states, led by Germany, and profligate southern countries was no longer relevant.

“Is there a single state in Europe, in the eurozone, that has left its citizens on their own to face inflation? Not one,” Le Maire said in an interview. “This concept of ‘frugal states’ has been dead for a long time. The Netherlands are not particularly frugal. Germany is not particularly frugal. They spend as much as we do to protect their citizens from inflation.”

The French minister’s insistence on new economic thinking in the EU — given the need for big investments in renewable energy to tackle climate change and for more defence spending following the Russian invasion of Ukraine — contrasts with the more frugal views of Christian Lindner, the German finance minister. Lindner said in May that the EU needed to become “tougher, not softer” in reducing public debt.

Le Maire conceded that the EU still needed limits on member states’ public debt and annual deficits, a set of requirements known as the stability and growth pact. But the rules — which have been suspended during the pandemic and which are supposed to limit a nation’s public debt to 60 per cent of gross domestic product — “should be rethought”, he said. “The debt rule is obsolete, simply because you have a gap of more than a hundred percentage points between one country and another in the same monetary union [the eurozone],” he said. What was important now, he added, was the trajectory of debt reduction...

more at FT

© FT plc