Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Finance ministers meeting in Brussels were unable to strike a deal on reforming EU rules on government debt and deficits despite over eight hours of negotiations stretching into Friday morning.
Their failure to reach an agreement underscores deep divisions between EU countries on fiscal policy, as rules suspended during the Covid-19 pandemic are set to start in January.
Germany is insisting on stricter limits to spending despite being chided at home over its own off-budget debt instruments, while France and Italy are pushing to maintain room for manoeuvre under the new rules.
“We now agree on 95 per cent of the text,” said French finance minister Bruno Le Maire. “I really think that on the remaining 5 per cent we can get an agreement before the end of the year.”
Lingering disagreements include how stringent annual spending limits should be, and how to treat debt servicing costs when calculating if a country is in breach of a 3 per cent annual deficit threshold.
“Excessive deficits have to be reduced, not excused,” said the German finance minister, Christian Lindner.
A possible solution now under consideration would be to treat high interest costs on public debt as a mitigating factor for the period 2025 to 2027 when the European Commission assesses national budgets against the rules.
The commission has already said that a number of national budgets for 2024 would not be in line with the rules, known as the Stability and Growth Pact, and will probably be sanctioned.
Germany has been insisting on adding ‘safeguards’ to the original commission proposal to ensure that countries reduce excess debt by a minimum amount per year, as well as limit annual spending to ensure that deficits do not exceed 1.5 per cent of GDP.
Lindner’s requests were largely if reluctantly taken on board but differences remain on the exact numbers. “We have not yet a common understanding about which numbers are sufficient,” he said.
Spain, which is chairing the talks, is likely to convene another ministerial meeting in two week’s time. EU economy commissioner Paolo Gentiloni said he was “quite optimistic” of reaching a deal before the end of the year.
EU leaders meeting in Brussels next week could also seek to build momentum for a deal, though their summit’s agenda has several other intractable issues including on whether to start membership talks with Ukraine and a controversial top up to the bloc’s budget.
