European Union finance ministers said that changes to EU budget rules is now under review. It should support investment in the post-pandemic economy for allowing a more realistic path in cutting some countries’ public debts. Finance ministers from the 27-nation bloc are starting discussions during a two-day summit in the Slovenian town of Brdo. This summit is about how to amend the rules to better fit changed economic realities.
European Commission Vice President Valdis Dombrovskis said that they will need a debt reduction path that is realistic for all member states. They also need to balance fiscal sustainability with the need to support the economic recovery. The rules setting limits on borrowing by European governments to protect the value of the euro, are suspended. This is until the end of 2022. So that the member states can be given more leeway in fighting the economic slump by the pandemic. Discussions on changing them are likely to last into next year. Some common themes such as the need to protect government investment are emerging now.
EU Economic Commissioner Paolo Gentiloni said that they need to avoid what happened in the previous crisis. The public investments reaching zero year by year. And this cannot happen in the next years. So they will have a discussion on the fiscal rules related to investments,which he considers would be a big effort. Green investment, aiming to reduce the Europe’s net CO2 emissions to the target of zero by 2050. French Finance Minister Bruno le Maire said that it was an idea worth discussing.
The rules says that governments should not run budget deficits higher than 3% of GDP. Countries like Italy, have debt of 160 percent of national output. This will make an annual reduction of 5 percentage points unrealistic, and that too especially if the country is to invest heavily in turning its economy green. Olaf Scholz, could become the first centre-left chancellor of Germany, Europe’s economic powerhouse, for 16 years if his party wins a national election on Sept. 26. He is showing a little appetite for a big reform.
Scholz says that the fiscal rules were flexible enough to allow massive spending during the COVID. They were also made to guarantee that public money is spent in a cautious way. Both aspects together are the right path of the centre for which Scholz is committing himself. EU finance ministers from the Netherlands, Finland, Sweden Slovakia, Czech Republic, Austria, Denmark and Latvia, traditionally representing a more frugal approach to public spending. In a joint letter they wrote that they are open to a debate on improving economic and fiscal governance. While sticking to a rules-based fiscal framework, the improvements should be made.
