EU finance ministers will have an initial discussion this weekend at their meeting in Stockholm on proposals from the European Commission on reforms to EU budget rules. It will be the start of an important and almost-certainly contentious process. The old rules were suspended during the pandemic and there is a general view that a new approach is needed. But EU states remain divided on how the rules should be framed. Agreement will be hard won, but ministers will realise, too, that failure in these talks would carry its own risks.
The EU’s stability and growth pact, which is designed to guide national budget policy, was launched in 1997 and has been reformed significantly over the years. Notably, the rules were tightened after the financial crash. Consultation on further changes had started but was suspended as the pandemic hit and the rules were then set aside to allow member states to combat this unprecedented event.
Now the process has restarted and the commission has just put forward a generally well-balanced proposal. But already big member states are at odds on what should happen, with Germany’s finance minister, Christian Lindler, criticising the commission’s latest proposals as not being sufficiently strict. Other major players, notably France and Italy, take the opposite view, arguing that more leeway is needed to take account of vital climate investment.
The politics will be interesting; different voices may emerge within the German government and fiscally conservative northern European states may play an important role. Observers believe that agreement must be reached well ahead of summer 2024, when the next European Parliament election are due and the commission’s term will be ending. This time factor is important, as it is unclear what would happen in the event of no agreement being reached. Would the old rules be reimposed? Or ignored? It would be risky territory.
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The commission has tried to take a middle road, proposing more leeway to allow countries to boost investment, but also rules obliging countries with higher national debts and budget deficits to reduce them at a prescribed rate. Four-year plans would be negotiated between member states and Brussels – this additional power being taken on by the commission is also controversial, as countries like Germany prefer binding rules, which apply to all.
Ireland’s strong budget position will mean that the rules as currently proposed would have a limited immediate impact – the government spending rules in domestic legislation are likely to be a more significant factor in the short term. However, how the rules are framed will be important in the longer term. And it is in Ireland’s interest that a credible and functioning system is agreed.