France and Germany propose negotiating “hand in hand” the reform of fiscal rules

French Finance Minister Bruno Le Maire has put it bluntly: “Everyone knows that, in the end, an agreement on the new rules of the Stability and Growth Pact requires a Franco-German agreement.” Shortly afterwards, his German counterpart, less explicit, came to confirm it. It is not just that they are the largest partners of the European Union, both capitals have the most conflicting positions on this issue and, in addition, they lead blocs of states: fiscal hawks versus doves, north-south. The Spanish acting first vice president and Minister of Economy, Nadia Calviño, knows the situation and makes a virtue of necessity: “I support and encourage all exchanges that can provide a constructive approach,” she indicated upon arriving at the meeting of ministers in Luxembourg. of Economy of the EU, the Ecofin, a council that he has to preside over this semester.

In that role of rotating Presidency of the Council of the EU, Spain had considered trying to reach this meeting with a first legal text for the agreement. It has not been possible. The new horizon is November 10, the date for the next Ecofin meeting. There is still a lot of distance between what Germany defends and what France asks for. There has been technical and also political work. The five ministers of the large countries, plus the European Commission, met in Marrakech during the IMF meeting and on Monday night in Luxembourg. In the first, sources familiar with the meeting point out, there was no progress: Germany warned that there was still much to do. And in the second, according to what happened this Tuesday, neither: there was a public debate in which only Italy and the representatives of the Commission took the floor, the others chose not to openly show their disagreements.

It was not possible to hear what Le Maire had announced upon his arrival: “The proposal I am going to make this morning is to continue advancing hand in hand between France and Germany. […] “We will continue working in the coming weeks to try to reach a Franco-German agreement that can serve as the basis for a more comprehensive agreement.” The German has taken up the gauntlet on his way out, justifying that “French-German initiatives are often acceptable to many member states because they combine the same values ​​and the same commitment to the EU with different perspectives on the details.” “We are working on common ground,” he finally concluded, avoiding further elaboration.

The great distance between France and Germany at this point is almost the same as it has been since the beginning of this debate. Berlin is committed to setting common numbers for everyone in adjustment plans regardless of their fiscal, economic or demographic position (a relevant factor in public spending for aging societies). France seeks tailor-made suits that allow “to have a sustainable level of debt, that is, a level of debt compatible with its level of growth and the investments that everyone considers absolutely essential: investments for the climate transition and investments for defense and security “, Le Maire said. Before launching this generic statement, the French minister pointed out where the obstacle to overcome with Germany will be: “I propose that we focus on one indicator: the debt. “This is the key indicator to define the new rules of the Stability and Growth Pact.”

Berlin, on the other hand, brings another element to the table: the deficit. Lindner has made it clear that, in his opinion, there is no way to send a credible message of commitment to reducing public debt to a “sustainable” level if there is not, in turn, a reduction in annual deficits. Sources in the negotiation explain that it is not something new, since in the proposal of new rules that the Commission has made, a debt objective is set and it is reached through an expenditure rule (a limit on primary spending). or a deficit ceiling, and both things would be the same or similar paths to get to the same place. Although, putting a deficit figure, they assume, is more easily communicable.

The executive vice president of the European Commission, Valdis Dombrovskis, says the same thing: “The 3% deficit, indeed, is not the objective. It is the upper limit, as is the current system. Our proposal maintains the same logic. “Member states apply their tax plans and would have to lower it, be prudent and stay below 3%.”

Germany pushes for deficit

The establishment of numerical objectives common to all countries has emerged from the first moment as the divisive element of the reform. The Commission avoided putting equal figures to be met by everyone. His plan involves four-year debt adjustment plans, extendable to seven if the state concerned commits to making reforms and investments. It did establish a series of safeguards for everyone: commitments could not be delayed until the end of the plan; If the deficit exceeded 3%, the State had to reduce it by half a percentage point per year; there was a spending rule. Germany, on the other hand, supported by an important group of countries, has always demanded that there be equal numerical adjustment objectives for all, regardless of their fiscal position. And there are still the pitfalls.

There would be more agreement on other elements, such as the control and approval mechanisms of adjustment plans. Also there, Berlin, suspicious of Brussels, is committed to reducing the role of the Commission and is achieving it with the help of others, for example, by reducing its role in the design of the mathematical methodologies to be used in debt sustainability analyses. and more commitments to transparency in its publication or transferring the appointment of the president of the European Fiscal Council, now an advisory body to the Community Executive, to the Council of the EU. Another point on which there would be an agreement would be on the special treatment of the increase in spending on Security and Defense when the deficit exceeded 3%, which could then be considered a mitigating factor to avoid the opening of an excessive deficit procedure.

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