Brussels is backing away from plans to rewrite the eurozone fiscal rule book, after finance ministers differed over how to make the framework simpler and the urgency of reforms.
European Commission officials have been conducting internal discussions over the merits of revamping the Stability and Growth Pact, which has been attacked for being both highly complex and overly flexible when dealing with governments in breach of the rules.
Despite fears that the eurozone is heading into a fresh slowdown, finance ministers meeting in Helsinki this week were divided over opening a Pandora’s box of technical and highly sensitive reform discussion.
“Today’s discussion seems to confirm that we need to approach cautiously,” said Valdis Dombrovskis, the Commission vice-president in charge of the euro. “We have to think if we can realistically change rules without opening legislation.”
Bruno Le Maire, French finance minister, warned against rewriting the pact for fear of descending into a “difficult, long and uncertain debate”. Instead, Mr Le Maire told reporters he wanted to focus on boosting investment at the European level and within countries that had room to expand their deficits.
“If you open a debate on the budget rules . . . we will spend all our time discussing new rules”, said Mr Le Maire.
With global economic momentum slowing and central banks sitting on depleted policy arsenals, richer European governments such as Germany and the Netherlands have been told to embark on more expansive fiscal policy. Mario Draghi, the outgoing president of the European Central Bank, urged governments to “take charge” of sustaining the expansion by expanding their budgets after he unleashed a barrage of monetary stimulus last week.
But EU ministers differ on whether urgent fiscal action is currently needed — let alone a potentially bitter debate on how to revamp the region’s fiscal rules. Whereas many northern European states favour a strict interpretation of the rules and automatic sanctions, southern governments with higher debt levels have welcomed flexibility and exemptions.
A report from the European Fiscal Board, an independent advisory body, presented on Saturday said the fiscal rules still had the undesirable effect of pushing struggling economies into deeper slowdowns and proposed a range of changes.
During the meeting, Italy and Spain made the biggest push to have public investment exempted from deficit calculations, said officials familiar with the discussion. Both Madrid and Rome backed the Fiscal Board’s suggestion for a new “golden rule” to protect public investment in a downturn.
Other member states such as Germany and Sweden said there should be a greater focus on strictly enforcing the rule book under a new European Commission after years of criticism that Brussels has been relaxed about policing the rules. No member state has ever been hit by financial penalties for breaking the protocol.
“The uneven implementation of the rules has eroded the trust of many member states in the fiscal framework”, Edward Scicluna, finance minister for Malta, told the Financial Times. “That in itself is the rationale to review and reform”.
Niels Thygesen, who chairs the European Fiscal Board, said at a press conference that finance ministers “will have a difficult time ahead of them — they don’t agree on too much, frankly”.
“We should avoid scenario of opening up legislation without involving all, and then having long and divisive debate and not achieving results,” added Mr Dombrovskis.