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Debt due to Corona: dispute over EU stability pact – Scholz: rules flexible enough

In the debate about the return to budget discipline after the Corona crisis, the first fault lines are becoming visible in the EU. Are you going back to strict debt and spending caps?

In the EU, a dispute is looming over the return to strict budget rules after the huge debt incurred in the Corona crisis.

Federal Finance Minister Olaf Scholz rejected far-reaching reform proposals on Friday. «We have a good framework for stability in Europe. And he has shown, especially now in the crisis, that he is particularly capable of acting, ”said the SPD candidate for chancellor at a meeting of EU economics and finance ministers in Slovenia. The French head of department Bruno Le Maire, however, spoke of rules that “are obviously obsolete”.

He cited the public debt ceiling as an example. There are now big differences in the debt ratios of the Member States. “We have to find a different method, different rules,” said Le Maire. The Spanish Minister of Economic Affairs, Nadia Calviño, also called for “new rules that should be ready before we leave this extraordinary situation of fighting pandemics.”

Scholz emphasized that one had to return to the stability criteria of the EU budget rules. “Everyone also knows that this is a process that needs a transition. But that is all possible within the framework of the applicable rules, ”said Scholz. The rules would have given the member states the opportunity to plan joint reconstruction after the pandemic with a European economic recovery plan.

The MEP Rasmus Andresen (Greens) criticized the course of the German finance minister. “It is incomprehensible that Olaf Scholz also wants to stick to the long outdated mantra of the stability criteria,” said Andresen. That contradicts the program of his party.

Several northern European countries are also relying on clear budgetary guidelines in a paper presented on Friday. Austria and the Netherlands, among others, emphasized that reducing excessive debt must remain the common goal. They only suggested slight changes to the rules: “In particular, simplifications or adjustments that favor a consistent, transparent and better application and implementation of the rules are worth discussing.”

Several ministers welcomed a move to exclude certain investments in environmental and climate protection from budgetary rules. “It’s worth a debate,” said Le Maire. In particular, there is a need to invest in the transition to a greener and digital economy. “It is important that we understand that today is not just about how we limit our budget, but also how we invest in our future,” said Belgian Finance Minister Vincent Van Peteghem.

The EU’s Stability and Growth Pact stipulates that EU countries do not take on more than 60 percent of their economic output in debt. Budget deficits are to be capped at 3 percent of the gross domestic product. At the beginning of the corona pandemic, however, it quickly became clear that the states would incur significant debts in order to cushion the crisis through spending. Therefore, the “general escape clause” of the pact was activated, which overruled the budgetary rules. According to the Nordic countries’ paper, the average EU debt ratio is now almost 100 percent of gross domestic product – compared to around 80 percent in 2019.

The “general escape clause” should actually be deactivated again at the end of 2022. However, some countries are finding the budget rules out of date given the high debt ratios in many countries and are calling for reform before the deadline. A consultation on a possible reform is planned by the EU Commission in autumn.

Another conflict could arise with the definition of green projects within the so-called EU taxonomy. This is about a uniform and transparent system for classifying ecologically sustainable economic activities. Le Maire wants to categorize nuclear power as a climate-friendly investment.

“There is no reason why nuclear energy should not be included in the European taxonomy by the end of the year,” he said. The federal government is, however, against the promotion of nuclear power as a green technology by the EU, as can be seen from a response from the Environment Ministry to the Bundestag member Franziska Brantner, which is available to the German Press Agency.

At the two-day meeting in Kranj, Slovenia, the finance and economics ministers of the euro countries first met in the morning. In the afternoon, the ministers from the non-euro countries joined them.

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