Little progress seen on EU debt rules at Friday meeting

By Jan Strupczewski

BRUSSELS (Reuters) – Not much progress is expected on the reform of European Union debt rules at EU finance ministers’ talks on Friday, officials said, as Germany and France remain at odds over whether there should be a minimum annual debt reduction obligatory for all.

EU finance ministers will meet in Luxembourg to discuss changes to the 27-nation bloc’s fiscal rules, set to underpin the value of the euro, because a surge in public debt caused by the pandemic and the war in Ukraine has rendered them obsolete.

The changes are meant to prevent excessive borrowing by governments at a time when the European Central Bank is quickly raising interest rates to bring down inflation while the economy is in technical recession.

The European Commission proposed in April that governments should ensure public debt falls by an individually negotiated amount over four years and keeps falling for a decade afterwards.

This is in sharp contrast to existing rules, under which each country is supposed to cut debt every year by 1/20 of the excess over the EU ceiling of 60% of GDP.

For highly indebted countries like Italy, Greece, France or Spain, this existing requirement is simply unrealistic.

The Commission therefore proposed that there should be no numerical target for annual debt cuts, stating only that at the end of the four years, debt must be lower than at the start.

This immediately drew criticism from the EU’s biggest country, Germany, worried that such loose formulation of the objective would suck all ambition out of the debt-cutting plans.

Berlin wants a 1% of GDP minimum annual debt reduction target explicitly written into the new rules which, Paris argues, defeats the whole purpose of the reform.

“I don’t expect anything in Luxembourg, because we have just submitted the first round of written comments to the Commission proposal last week,” said one senior national official who takes part in the preparation of the meeting.

“Now the Swedish presidency needs to go through the comments, which will take some time. Probably so much time that they will not make any compromise proposals, but leave that to the next presidency,” the official said, pointing to Spain which takes over the chairing of EU meetings on July 1.

A second senior national official said the ministerial talks would boil down to a high-level political exchange, but without any specific outcome.

Officials were also wary that because part of the debate on the reform would be public, some ministers might be tempted to “play to the gallery” and make statements aimed mainly at winning points with voters at home.

“In preparatory discussions, some countries asked for ministers not to draw ‘red lines’ in the public session, so that there is a possibility of reaching a compromise afterwards,” a third senior national official said.

Officials said they did not expect a deal before December.

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