Germany and France conspire to finalize numerical details of fiscal rules this month

In October, the Franco-German axis took control of the negotiation of European fiscal rules and in November it intends to finalize the pending details, the numbers that are missing to define the debt or deficit reduction objectives and seal the expected agreement. On paper, it is up to the Spanish president to take the reins of the negotiation, and it is the vice president Nadia Calviño who speaks with all the parties, who is in charge of drafting the documents and who must present a legal text in the coming weeks, but in the practical now the solution goes through Berlin and Paris.

It is common for the two great powers to assume responsibilities in the most complicated dossiers, and the framework for the economic governance of the Eurozone is undoubtedly one of them.. But in this case the governments of Olaf Scholz and Emmanuel Macron are also on opposite fronts.. Germany is the most combative country on the orthodox side, which has demanded and is achieving that in the final text there are concrete numerical references for the objectives of structural efforts, debt and deficit reduction, something that was not even in the spirit of the reform promoted by the European Commission nor in the plans of the Spanish presidency. And France represents, at least in part, those like her, Italy and others in the south who advocate taking advantage of the moment to avoid repeating past mistakes, developing a different and more modern framework that has more impact on growth and employment and less in fiscal corsets.

In summer, Spain presented a series of four blocks to move forward with a view to closing the matter before the end of the year, since on January 1, 2024, if this reform is not achieved, the Stability and Growth Pact will come into force again. who was left in an induced coma with the arrival of the pandemic. These four pillars are an institutional balance, common objectives, fiscal space for investments and reforms and credible implementation and national ownership, so that Member States have a greater role in designing adjustment paths..

Progress has been made in almost all of them, but the most difficult thing remained, the so-called numerical 'benchmarks', the obsession of Minister Lindner, who says that personalized paths are very good, investments are very necessary and that new rules are needed, but that the annual reduction of the deficit, the reduction of the debt and the establishment of margins or buffers for all countries, regardless of their situation, so that the threshold of the Stability Pact (3% and 60%) is a maximum and not a minimum. That is, even those who are comfortable and do not have imbalances have to make annual efforts to move away from 3%.. What is now on the table is when and when. And that's why they will meet in Berlin, no matter how much Calviño wants to maintain control and has called, for the end of this month, an extraordinary Ecofin in which, now, he has promised that there will be a legal text to finalize..

“A Franco-German initiative could lead to mutual understanding between all Member States. That is why I went to Paris this week and we found a common basis on debt safeguards and the deficit benchmark, a substantial step forward that has been recognized at the Ecofin table and in the new landing zone,” said the German minister this week. Thursday in Brussels, in reference to the technical document distributed by the Spanish presidency to find a “landing zone satisfactory for all.

“I am much more optimistic that we can reach an agreement this month. Bruno will visit me these weeks and we will exchange positions on the level of ambition. There is progress in the idea of safeguards and the now fully recognized objectives for annual debt and deficits but the level of ambition needs to be seen. Now it's about numbers, not just instruments. I'm optimistic but there's a lot of work to do.. There are no specific deadlines, we have an open debate between partners and friends. There are no red lines, only horizons,” said Lindner, fully satisfied.

Change of tone

His tone, inside and outside the room according to the sources consulted, is completely different from last month, when he charged against Calviño and reproached him for his tone towards the German positions.. The criticism from his delegation, but also from others from northern Europe, focused on the Spanish presidency because, they said, it refused to accept, and therefore to reflect on paper, that its aspirations were impossible.. That it was clear, whether he liked it or not, that there would be numerical objectives, and that the discussion will be which ones and what there will be in return.

Spain advocated introducing longer debt adjustment paths, and the papers include a prominent role for the Recovery Plans associated with the Next Generation Funds, a victory for its interests, since in this way it could be guaranteed almost automatically. that the adjustment paths of all those with imbalances go from four to seven years without having to make major reforms or concrete investments. “I believe that broad agreement is emerging on the central elements of the framework, the mechanisms that should be applied and the safeguards,” said the Spaniard, urging “refining the details and calibration, so it is necessary to start working on the legal text”.

Spain and France did not want numerical objectives for the annual reduction of either the deficit or the debt. And there will be. The French minister acknowledged in statements to the media that the Spanish presidency has done a “remarkable job” to “bring closer positions”, as well as that the proposals in the latest document “are good” and form “the basis” so that the Twenty-seven can achieve an agreement on the new Stability Pact before the end of the year.

That said, the deadlines have now been greatly tightened. Calviño has called an extraordinary meeting at the end of the month, presumably when France and Germany will pave the way with an intermediate point on the remaining issues, such as how large this cushion should be so that when there is a crisis the indicators do not shoot above 3 %. In any case there is another regular Ecofin on the December agenda. And when the governments agree, and have their legislative proposal, they will sit down with the European Parliament to close the package. Predictably already in 2024, but with the aim that the old Stability Pact that will be resurrected on January 1 can be buried to be always shortly thereafter and replaced by the new framework.