EU finance ministers met long into the night last Thursday, but failed to agree on what rules for national budgets would be put in place when the leeway first introduced for the Covid-19 period runs out at the end of this year. The rules govern annual national deficits and debt levels, and the failure to reach agreement underlines gaps across the EU on how this should be managed. There is some hope of compromise before the end of the year, but this is far from guaranteed.
The argument has broken down on predictable grounds. Germany is seeking the reimposition of tough rules, while France and Italy want flexibility to be maintained. The talks are chaired by Spain, whose finance minister Nadia Calvino will leave to head the European Investment Bank early next year. She may convene another meeting to try to reach agreement just before Christmas, reports suggest.
At issue are rules governing national flexibility on setting deficit levels – the previous limit was 3 per cent –1 and obligations to reduce national debts judged to be excessive. While much of the debate is technical and surrounds how issues such as post-pandemic debt burdens might be dealt with, the rules are important to underpin confidence in the euro area and the wider EU.
Germany’s tough stance comes despite recent criticism by its own highest court on the country’s off-balance sheet financing, raising questions on its own spending plans, including in relation to aid to Ukraine. Reports suggest some of the German points have been accepted by other ministers, but questions remain. Underlying this are Germany’s own overly-restrictive budget rules.
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This may all raise its head at this week’s meeting of EU leaders. However, they have other issues on their plate, including the need to increase the EU’s budget and whether to open membership talks with Ukraine. This, in turn, entails complicated politics involving a threatened veto from Hungarian prime minister Viktor Orban.
Europe will find ways forward, but as ever it may take some time.