© Reuters. FILE PHOTO: Flags fly outside the European Parliament in Strasbourg, France on June 12, 2023. REUTERS/Yves Hermann
by Jan Strupczewski
BRUSSELS (Reuters) – No major progress on reforming European Union debt rules is expected at EU finance ministers’ talks on Friday, officials said, as Germany and France remain at loggerheads over whether there should be a mandatory annual minimum threshold for debt downgrades. Debts. .
European Union finance ministers will meet in Luxembourg to discuss changes to the 27-nation bloc’s fiscal rules, which are set to prop up the value of the euro, as a rise in public debt caused by the pandemic and the war in Ukraine has rendered them obsolete.
The changes are meant to prevent excessive borrowing by governments at a time when the European Central Bank is rapidly raising interest rates to bring down inflation while the economy is in a technical recession.
The European Commission proposed in April that governments ensure that public debt falls by an individually negotiated amount over four years and that it continues to fall for a decade thereafter.
This is in sharp contrast to the current rules, under which each country is supposed to reduce debt each year by 1/20th of the surplus over the EU ceiling of 60% of GDP.
For heavily indebted countries such as Italy, Greece, France or Spain, this current requirement is unrealistic.
The committee therefore suggested that there is no numerical target for annual debt reduction, stating only that at the end of the four years, the debt should be less than it was at the beginning.
This immediately drew criticism from Germany, the largest country in the European Union, which worried that such a loose goal formula would suck all the ambition out of its debt-reduction plans.
Berlin wants a minimum annual debt reduction of 1% of GDP to be written explicitly into the new rules which Paris says defeats the whole goal of reform.
“I don’t expect anything in Luxembourg, because we just submitted the first round of written comments on the Commission’s proposal last week,” said a senior national official involved in preparing for the meeting.
The official said, “Now the Swedish presidency needs to review the comments, which will take some time. Perhaps a lot of time so that they don’t make any compromise proposals, but they leave that for the next presidency,” noting that Spain will take over the presidency of the EU meetings on July 1. .
A second senior national official said the ministerial talks would be shortened to a high-level political exchange, but without any specific outcome.
Officials have also been wary that because part of the debate over reform will be public, some ministers may be tempted to “play the fair” and make statements aimed primarily at winning points with voters at home.
A third senior national official said, “In preliminary discussions, some countries asked ministers not to draw ‘red lines’ in plenary, so that there is a possibility of compromise afterwards.”
Officials said they did not expect a deal to be reached before December.