Daily Management Review

EU Budget Rules Must Support Investment And Realistic Debt Cuts, Says EU Ministers


EU Budget Rules Must Support Investment And Realistic Debt Cuts, Says EU Ministers
The European Union's finance ministers stated Friday that they are currently reviewing EU budget rules and suggested changes should be made to support post-pandemic investment. They also said that it would be easier to reduce huge amounts of public debt.
The 27-nation bloc's finance ministers will meet in Brdo, Slovenia to discuss how to modify the rules to better reflect economic realities.
"We need a path to reduce our debt that is feasible for all members. As Valdis Dombrovskis entered the negotiations, he stated that we need to strike a balance between fiscal sustainability and the need to support economic recovery.
To give member states more flexibility in combating the economic slump caused the coronavirus pandemic, the rules that limit borrowing by European governments are being suspended.
While discussions on their reform are expected to continue well into 2022 and beyond, some common themes are already emerging such as the need for government investment protection, which is often the first to be cut during crises.
Paolo Gentiloni, EU Economic Commissioner, stated that we must avoid the same mistakes as the last crisis in which public investments reached zero year after year.
"This cannot be achieved in the next year and this is also why tomorrow we will have discussion on fiscal rules related to investments," said he, adding that it would take a lot of effort to reach consensus on changes.
Green investment, which aims to reduce Europe's net CO2 emissions, should be given special treatment and exempted from EU deficit calculations. Bruno le Maire, the French Finance Minister, stated that this was an idea worth considering when he entered the talks.
Talks about EU fiscal rules are politically sensitive due to a lack trust between traditional more fiscally prudent northern EU countries, and what they perceive as more profligate south nations. This rift was exacerbated by the sovereign default crisis of 2010-2015.
The fiscally prudent fear that others will use any exemptions from deficit calculation to piggyback on the more strict with spending. This is especially true if it is difficult to define what "green" spending means.
Current rules state that government budget deficits should not exceed 3% of GDP. Debt should be kept below 60% of GDP. Higher debt should be reduced each year by one-fifth of its excess beyond the limit of 60%.
However, some countries like Italy have a debt ratio of 160 percent. This makes a 5 point annual drop impossible, especially if it plans to invest heavily in making its economy more digitalized and green.
The EU finance ministers of the Netherlands, Finland and Sweden Slovakia, Czech Republic. Czech Republic, Austria. Denmark, Latvia, and the Czech Republic expressed cautious support for the changes.
"We are open for a discussion on improving economic and fiscal governance including the Stability and Growth Pact. They agreed to maintain a rules-based fiscal framework but suggested that improvements be made.