A large majority of EU countries and political groups agree the Stability & Growth Pact (SGP) badly needed revamping but the European Commission’s latest tweak to the rules met with mixed reception.

There are concerns that the Commission’s last-minute addition of quantitative benchmarks, to allay Germany’s worst fears, may weigh on debt-reduction programmes, and limit investments in the green transition.

In effect, the revision of the SGP, published by the Commission on Wednesday (26 April) looks to give member states more leeway to define tailored debt-reduction programmes in partnership with the Commission and move away from previous one-size-fits-all requirements that, according to many experts, did more harm than good

“The general orientation of the reform is a positive one: the SGP as we know it no longer is adequate or legitimate economically”, Andreas Eisl, a research fellow at the Jacques Delors Institute, told EURACTIV.

Mujtaba Rahman, the managing director at Eurasia, an influential political consultancy, tweeted that the revision is “a big deal – second only to a deal on Ukraine’s EU accession”.

Commission inches towards Berlin in EU debt rules proposal

The European Commission presented its legislative proposals for a reform of the EU rules for national debts and deficits on Wednesday (26 April), moving closer to the position of Germany but keeping the key concept of country-specific debt reduction plans.

A badly-needed reform

The Spanish economy ministry, who will lead negotiations when they take over the Presidency of the Council of the EU in July, confirmed to EURACTIV the revision marked a milestone which “reinforces fiscal sustainability in a growth-friendly way”, a view shared by their Polish and Dutch counterparts.

The SGP is “a key element in ensuring that Europe remains crisis-resistant in the future”, added Austrian Finance Minister Magnus Brunner, a balanced-budget ‘hawk’, encouraging EU member states to “return to sustainable budgets, like Austria”.

Even the more indebted countries, like Italy, France, and Belgium, said they were satisfied with the proposal, according to an EU official who spoke to EURACTIV on condition of anonymity.

“Recognising the need for national debt-reduction trajectories, taking long-term investments into account, make they tailor-made to each country… This revision speaks to fights we have won”, the official added.

In Italy, which holds one of the highest public debts in the EU, far-right Economy Minister Giancarlo Giorgetti spoke of “a step forward”, while right-wing Fratelli d’Italia European Parliament delegation chief, Carlo Fidanza, said “the attempt to overcome the rigidity of the current rules” is a positive takeaway.

Fidanza warned, however, that much work remained: “The pendulum seems to have swung in the direction of austerity and not growth”.

EU economy commissioner: Debt rules have cost us growth

European Economy Commissioner Paolo Gentiloni and German Finance Minister Christian Lindner on Monday (30 January) clashed over EU rules for national public debts and deficits, which the Commission wants to make more flexible, while Lindner insists on “verifiable” rues.

A Franco-German spat?

The individualisation of debt-reduction targets might be an improvement on the status quo, but critics of Germany’s last-minute addition of numerical “common benchmarks” are plenty.

“We will need to make sure [the new benchmarks] do not bring us back to old methods that have proven to fail in the past”, a French EU diplomat warned.

Contrary to the Commission’s initial Communications on an SGP reform published in November, several new benchmarks were brought in by the Germans, who were concerned the new rules would otherwise not reach the general objectives of reducing public debt levels.

These include, most importantly, a minimum debt reduction of 0.5% of GDP per year, but only for those countries where the annual deficit exceeds the 3% limit set in the treaties. Member states would also have the obligation to see their public debt levels lower at the end of the adjustment period than at its beginning.

These new measures “support pro-cyclical budgetary cuts”, which may in turn “threaten economic growth” and the EU’s climate, digital and strategic objectives, French Renew MEP Stéphanie Yon-Courtin told EURACTIV.

On the other hand, Germany’s liberal Finance minister Christian Lindner complained that the numerical “guardrails” were too few: “The proposal as it has been published [on Wednesday] does not achieve what it should”.

In an unofficial position paper sent to the Commission earlier this month, the German government had proposed a minimum debt reduction of 1% of GDP per year for all highly indebted countries.

This split of minds between the French and the Germans might play out concretely within the centre-right Renew group in the European Parliament. While the French delegation were cautious, the Germans’ Liberals, the FDP, held the pen for the new rules, adopting a particularly hawkish position.

“The FDP addition runs against the flexibility that the reviewed SGP should bring,” a Renew official told EURACTIV off the record.

Andreas Eisl of the Delors Institute pointed out that “the French have always pushed for an approach rooted in expertise and economic reality”.

Or, as Rahman put it more bluntly, “the French are furious”.

German debt rules proposal fuels new austerity fear

A German non-paper on the reform of European debt rules has been met with strong reactions from economists, who fear that the mistakes of the euro crisis could be repeated if the proposal is implemented strictly.

Accounting for green investments

Italy is also more than concerned.

Fidanza warned that “having set the imposition of a multi-year cap on public spending without also providing a ‘golden rule’ for public investment risks jeopardizing the economic recovery and growth of countries with high debt”.

Under the new proposal, ‘fiscal adjustment’ periods, as the jargon has it, should be no longer than four years, during which public debt must go down according to an agreed-upon debt-reduction plan. This period can be extended to seven years, however, “if underpinned by reforms and investments”.

But there is no incentive to invest in the green transition, Caroline François Marsal from Climate Action Network told EURACTIV, warning that the Green Deal objectives are at risk of never being met on time.

Instead, she called for the creation of a European Green Fund which gives budgetary capacity to all member states to invest in long term green projects, the spending for which should be “excluded” from debt level calculations.

A view shared by former Belgium Prime Minister, who called for much greater flexibility in fostering green investments.

The Greens also look favourably to a new EU fund, all the while advocating to get rid of the original 3%-deficit / 60%-debt rules altogether. These “arbitrary numbers” are no more than a call for austerity, a Green official told EURACTIV. “We hate these benchmarks”, he added.

And negotiations in Parliament and in the EU Council haven’t even started…

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Commission inches towards Berlin in EU debt rules proposal

The European Commission presented its legislative proposals for a reform of the EU rules for national debts and deficits on Wednesday (26 April), moving closer to the position of Germany but keeping the key concept of country-specific debt reduction plans.