States in the European Union are fighting over post-coronavirus budgetary measures. In order to prevent a return to pre-pandemic fiscal regulations, southern states demand considerable changes. At the same time, northern members seek a return to stable fiscal policies.
The dispute rages on, but now the EU Commission seems to be divided. Last year, when he endorsed Spain, France, and Italy’s ideas, EU Commissioner Paolo Gentiloni emphasised that disparities between northern and southern nations are worth considering.
He said: “The risk of differences is there — you could even argue the risk is stronger if you don’t open the debate on the rules.”
But, as reported by the Financial Times on Tuesday, EU Human Resources and Budget Commissioner Johannes Hahn was wary about removing specific categories of public debt from national budgets.
He said: “I am not supporting any ideas [to] exclude certain kinds of debts, qualifying them as good ones, sustainable ones, green ones etc. At the end of the day, debt is debt.”
He stated that member nations public budgets should be regularly “stress tested.” During the epidemic, the regulations that preserve budgetary discipline were suspended. On Monday, eurozone finance ministers will meet in Brussels.
Executive Vice-President Valdis Dombrovskis said member nations must provide “credible” debt reduction strategies.
A member of the centre-right European People’s Party, Mr Hahn backs frugal northern nations like the Netherlands, Nordics, and Baltics.
After the sovereign debt crisis, former Austrian Finance Minister Gernot Bluemel argued that the regulations helped reduce debt-to-GDP ratios throughout the EU. In a letter, Mr Bluemel wrote: “A key lesson after the financial crisis was the need to reduce high debt ratios and increase fiscal sustainability in order to prepare for unforeseen future events.”
“The Commission will come up with a review of the economic governance framework in the coming months.”
He called several southern EU Stability and Growth Pact reform proposals “concerning”.
He said: “I am somewhat concerned about some contributions questioning a rules-based framework or diluting the value of sustainability.”
“Our common objective must be a reduction of debt to GDP ratios over the medium- and long term.”
Some top EU officials say the regulations should be streamlined and focused on factors that finance ministers can directly manage, such as public expenditure and debt. Others argue that the regulations should encourage investment, which is vital to growth, and so remove it from budget deficit calculations (which are presently limited to 3% of GDP).
Some top officials think governments should target debt payment costs rather than debt-to-GDP ratios. According to the Financial Times, a solution might include capping the green expenditure excluded from debt and deficit calculations.
He told the paper: “We need a cap that is politically acceptable for all countries on what spending gets special treatment.”
“If we inject 1 per cent of GDP per year, it makes a clear difference and can start a virtuous investment cycle.”