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BERLIN – Finance Minister Olaf Scholz (SPD) is the favorite, according to recent polls, to become the next German Chancellor. No wonder then that he attracts attention not only within the country, but also from neighbors across Europe who watch and listen to his every word.
This was certainly the case last weekend in Brdo, Slovenia, where the Minister met his European counterparts. And of particular interest to those in attendance is Scholz’s position on the issue of debt settlement reform for the euro area, a topic that is expected to be hotly debated among EU members in the coming months. .
France, which is holding its own elections early next year, has already made its position clear. “Regarding the Stability and Growth Pact, we need new rules,” said Bruno Le Maire, French Minister of Economy and Finance, at the meeting in Slovenia. “We need simpler rules that take into account the economic reality. This is what France will advocate in the coming weeks.”
The economic reality of euro area countries is an average national debt of 100% of GDP. Only Luxembourg currently meets the two central requirements of the Maastricht Treaty: that the national debt be less than 60% of GDP and that the deficit does not exceed 3%. For now, those rules have been rescinded due to the coronavirus crisis, but next year national leaders must decide how to move forward and whether the rules need to be reinstated in 2023.
Europe’s north-south divide continues
The debate promises to be intense. The fiscally conservative countries, especially Austria and the Netherlands, are opposed to the relaxation of the rules, as they recently made it very clear in a joint position paper on the subject. In contrast, countries in southern Europe facing high levels of national debt believe the time has come to loosen the rules.
These governments are calling for countries to have more freedom over their national debt levels so that the economy, which is recovering remarkably quickly thanks to spending related to the coronaviruses and the easing of its fiscal policy by the European Central Bank, can continue to grow.
Despite its clear position on the issue, Paris has not yet gone on the offensive.
The rules must be “adapted to the new reality,” Spanish Finance Minister Nadia CalviÃ±o told Brdo. She says the eurozone needs “new rules that work”. His Belgian counterpart accepted. The national debts of the two countries currently amount to more than 100% of the GDP. The same is true of France, Italy, Portugal, Greece and Cyprus.
Officials there will keep a close eye on the German elections – and the coalition negotiations that will follow. Along with France, Germany still sets the tone within the EU, and Berlin’s stance on the brewing conflict will largely depend on the appearance of the coalition government.
A key question is which party Germany’s next finance minister is from. In their election campaign, the Greens called for the debt rules to be revised so that in the future they support rather than hamper public investment. The FDP, however, wishes to restore the rules of the Maastricht Treaty as they were and ensure that they are applied more strictly than before.
This demand is unlikely to gain ground at EU level as too many countries would still break the rules for years to come. There is already a consensus on the need to reform them; what remains at stake is how far these reforms should go.
Time for Draghi to step up?
Despite its clear position on the issue, Paris has not yet gone on the offensive. However, from January, France will assume the presidency of the Council of the EU for a period that will coincide with its presidential election campaign. And Macron’s main rival, right-wing populist Marine Le Pen, is likely to put reforms at the forefront, especially since she has long advocated against Germany and for more freedom.
Rome trusts the negotiating skills of Prime Minister Mario Draghi, former president of the European Central Bank. Draghi is a respected EU financial expert at the debate table and can be of great service to Italy precisely at a time when Merkel’s departure may see Germany represented by a politician less experienced in it. kind of endless summits, where discussions go on for a long time. in the night.
The Stability and Growth Pact can survive unscathed.
Regardless of the intensity of the debates, the Stability and Growth Pact may well survive the conflict unscathed, as its symbolic value can make revision of the agreement itself virtually impossible. It will rather be a question of rewriting the rules which govern the interpretation of the Pact: regulations, that is to say on the calculation of the deficit and the public debt.
One possible change would be to allow discounting of future borrowings for environmental investments. France is not the only one to claim it. European Economic Commissioner Paolo Gentiloni also added his voice.
The European Commission assumes that the debate could drag on. The rules – put aside during the pandemic – are expected to come into force again in early 2023.
The Commission is already preparing for the possibility of reactivating them without any reform. They are exploring how flexibility that has already been built into debt laws could be used to ensure that a large chunk of eurozone countries do not automatically find themselves breaking them, officials said.
The Commission will present its reform recommendations, which will serve as the basis for countries’ negotiations, in December. At this point, the results of the German elections will be known, as well as possibly the coalition negotiations. And we might get a clearer idea of ââhow intense the fight over debt rules is in Europe – and whether the hopes of the countries of the South could come true.
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