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EU hawks set tough terms for talks on reform of fiscal rules

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A group of hawkish EU finance ministers is preparing to take a tough line in talks over post-pandemic changes to the EU’s budget rules, insisting any reforms must not jeopardise fiscal sustainability or water down debt reduction targets.

A paper supported by finance ministers from eight countries — including Austria, the Netherlands, Denmark and the Czech Republic — declared a willingness to discuss “improvements” to the EU’s Stability and Growth Pact.

But they warned that member states must recommit to “sound public finances” and cutting public debt, which ballooned during the Covid-19 crisis.

In a clear signal to the European Commission, which is set to reopen a consultation on the rules, the eight ministers said “quality is more important than speed” when it comes to any change.

The paper is an early intervention in a politically fraught debate over whether and how the union should overhaul its complex fiscal framework, after member states’ deficits and debts blew out during the pandemic. The EU suspended its usual spending rules last year in response, giving member states more fiscal firepower to address the crisis.

The signatories to the paper include some of the EU’s most fiscally conservative states. The language reflects their deep suspicion of calls from other countries, mainly in southern European, for a looser fiscal regime.

In their paper, the eight ministers indicate that they are willing to see the fiscal rules reapplied without changes once the suspension ends, probably at the start of 2023.

“Sustainable public finances create confidence and fiscal space for political priorities and for dealing with future crises and challenges,” the paper says. “Reducing excessive debt ratios has to remain a common goal.”

The paper nevertheless reflects a recognition in some of the capitals that talks over whether aspects of the rules should be reconsidered is now unavoidable. The EU’s public debt ratio is expected to have risen 15 percentage points in just two years, to 94 per cent of GDP in 2021.

Many of the capitals are determined to counterbalance any changes in the rules with the imposition of tougher and more consistent enforcement.

The paper comes as finance ministers meet in Slovenia on Friday and Saturday, when the topic is expected to be informally discussed.

Policymakers including EU economics commissioner Paolo Gentiloni have been urging far-reaching legislative changes to the Stability and Growth Pact given the damage done to public finances during the crisis and the need for public investment.

Among the ideas being floated by economists and politicians are changes to strip out investment in green projects from deficit restrictions.

The eight ministers said “improvements should be made” to the SGP, but focused on simplifying the regime and making it more transparent and consistently applied.

It was critical that “new proposals do not jeopardise the fiscal sustainability of member states, the euro area or the union as a whole”, they wrote.

The paper was also supported by the finance ministers of Latvia, Slovakia, Sweden and Finland. Absent were the EU’s biggest member states — Germany, France, Italy and Spain.

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