EU finance ministers agreed small steps towards creating a eurozone budget after marathon talks failed to settle a longstanding Franco-Dutch dispute over how it should be funded.

After almost 12 hours of sometimes fraught negotiations in Luxembourg that ran into the early hours of Friday, ministers were only able to agree the broad purpose of the budget, while putting to one side questions over its financing and eventual size.

During the talks, Spain made the strongest interventions in favour of the budget, with France trying to play a more conciliatory role. The Dutch at some points threatened to walk out without a deal, according to officials present.

Pierre Moscovici, EU economic affairs commissioner, described the partial deal as “the best landing zone possible” given “how far apart” some ministers were at the start of the discussion. 

“We must not forget some ministers and countries were absolutely against the eurozone budget, against the word, and against the fact,” he said. “Is this a big step or a small one? I would say we have opened the door and we will see now what will happen.”

Mr Macron’s ambitions for an economic stabilisation fund worth several percentage points of eurozone gross domestic product have been watered down over the past two years, as they came up against entrenched opposition from fiscally hawkish countries such as the Netherlands.

Friday’s agreement is the surest sign yet that the budget will come to fruition in a smaller, more targeted form, but will take a year or more of further talks to fully establish.

“We did not curtail ourselves on any of the dimensions imagined for this budget, and that is the important thing,” said Mário Centeno, president of the eurogroup of eurozone finance ministers.

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Under the plans, national governments will bid for money by proposing public investment and reform projects. Brussels and Paris have said the approach will incentivise countries to comply with the reform recommendations the EU already makes each year as part of its review of national budgets.

The core disagreement was over whether the eurozone budget should draw its money entirely from the broader EU budget, which is paid into by all 28 national governments and is administered by the European Commission, or should also have other funding sources.

Bruno Le Maire, French economy minister, argued for an “intergovernmental agreement” that would commit individual governments to top up the budget through direct contributions.

But that sparked resistance from The Hague and other capitals, which feared that it could leave them facing potentially unlimited obligations if the budget ended up being tapped more than was foreseen.

“We still have a long way to go — in particular on how we finance the new budget — and I don’t underestimate the challenges ahead,” said Mr Le Maire in a statement after the meeting. “But we did tonight what we had set out to do: we’ve created a genuine eurozone budget.”

Eurozone capitals also disagree over how the budget should be governed, with Paris and Berlin pushing for eurozone governments to administer it collectively, while others want Brussels to have a more central role. 

EU diplomats said much work remained to be done. Friday’s deal still needs to be turned into a detailed EU law, requiring further complex talks.

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There are also likely to be further disputes over the precise way funds are allocated. Wopke Hoekstra, the Dutch finance minister, hailed an “excellent result” in discussions that ensured the “instrument” could not be used to stabilise economies in trouble.

“Once again we’ve made it clear, no matter the noise people feel they have to make, this is about competitiveness and convergence and not in any way about stabilisation, which continues for us to be unacceptable,” he said.

Discussions on the size of the budget are also expected to be difficult.

The final amount will be decided as part of broader talks on the EU’s future financing which are expected to continue for months. “When we talk about a budget, the size matters and that will be decided by leaders later in the year,” said Mr Centeno.

A group of five fiscally hawkish countries — the Netherlands, Finland, Ireland, Latvia and Lithuania — have already insisted the budget should be “significantly below” proposals made by the commission in 2018 for an EU funding programme worth €22bn over seven years. 

A mere €17bn was allocated to euro area countries in the commission plan.

Ministers also reached a deal to upgrade the eurozone’s bailout fund, the European Stability Mechanism, including by making it a last-resort lender in situations where regulators need help coping with a banking collapse. 

That agreement follows through on commitments made by euro area governments last year.



Via Financial Times