March 29. 2024. 12:21

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EU Parliament’s Renew agrees common position on new debt rules


European Parliament’s Renew Europe group adopted its common position on the review of the Stability and Growth Pact (SGP) on Monday (8 May), in an effort to strike a middle ground between German and French positions.

The position paper, dubbed a ‘Decalogue’ and seen by EURACTIV, lists 10 principles Renew MEPs vow to abide by as they enter negotiations. The common position was adopted as MEPs meet in Strasbourg for the Parliament’s plenary session.

EURACTIV recently reported that the review proposal had created a stark split within the group between the French delegation, in favour of more flexible, country-specific plans, and the German FDP delegation, which supports strict common rules for all.

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.

Mostly in line with the Commission

For the most part, Renew MEPs are in line with the Commission’s proposal, presented in late April, 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.

“Reference adjustment paths should rely on a multi-year benchmark, and should be the outcome of a dialogue between each Member State and the Commission (based on transparent methodology) with the endorsement of the Council,” the document reads, which very much follows the intention of the Commission.

MEPs also support the Commission’s proposal to do away with the 1/20 rule. This rule required member states to reduce their public debt by 1/20th of the debt that exceeded the 60% debt/GDP limit every year.

They further agreed that the 60% debt/GDP and 3% deficit/GDP ratios, enshrined in EU treaties since the 1990s, “shall remain in place”.

Finally, the Renew group emphasised that debt-reduction plans should contribute to “completing the twin [green and digital] transitions and building our strategic autonomy”. Extending fiscal adjustment plans from four to seven years when a member state commits to undergoing structural reforms or promoting strategic investments “is needed”, according to the document.

Countercyclical contradictions

While the vague formulations allow the document to paper over the internal split within the Renew group a little, the split becomes obvious in the paper’s points regarding countercyclical policies and mandatory debt reduction.

When the Commission presented its proposal in April, it deviated from its November Communication by adding new ‘common safeguards’ that would apply to all member states equally regardless of their country-specific ‘fiscal adjustment’ – that is, debt reduction – plans.

Specifically, the Commission proposed that, in those countries and years when the annual deficit exceeds the 3% limit set in the treaties, countries would need to reduce their net expenditure by at least 0.5% of GDP per year.

The common safeguards were a specific ask by German Finance Minister Christian Lindner, who is not yet happy with the safeguards and whose party, the liberal FDP, is also part of Renew. The French, on the other hand, have called for greater flexibility, and were concerned the new safeguards would be the repeat of old mistakes, and the start of a new wave of austerity.

“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 told EURACTIV at the time of the Commission’s publication.

These safeguards “favour 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 had told EURACTIV following the proposal’s publication.

The ‘Decalogue’ makes no mention of the split between the FDP and French Renew MEPs, but unveils it nevertheless.

On the one hand, point three of the document states that “the core objective of any reform should be to promote countercyclical policies while ensuring debt sustainability”, representing the French position that growth should not be risked by imposing budget cuts in times of economic weakness.

On the other hand, point eight aims to accommodate for the FDP’s position: “even though reduction paths need to be flexible, any new calculation should still result in an effective reduction during each year of the adjustment period” – which could lead to the pro-cyclical policies that the Renew MEPs want to prevent in point three.

New EU debt rules welcome, but tensions simmer on Germany’s new ‘benchmarks’

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.

Other points of agreement

The document also makes clear that the framework ought to be “enforceable”, with a sanctions regime that “enables its use and promotes compliance”.

In line with other parliamentary groups, Renew asks that the European Parliament takes a greater role in keeping track of member states’ obligations and ensuring accountability.

Finally, the liberal MEPs also call for “further coordination” between the economic governance framework and the macroeconomic imbalances procedure.

EU fiscal rule reform has become a defensive fight

The new EU fiscal rules proposed by the Commission will not slam public investment or exacerbate recessions in the immediate future, but they might haunt the eurozone in the long-term, Centre for European Reform’s (CER) Sander Tordoir writes for EURACTIV.

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