For months, Federal Finance Minister Lindner has been insisting on strict and uniform debt rules for everyone. Now his own household at home is shaky. Does this have consequences for the negotiations in Brussels?
The finance ministers of the EU states are making a new attempt this Thursday to resolve their dispute over reforming European debt rules. They will also meet in Brussels for a working lunch in the evening (7 p.m.). Ideally, a fundamental political agreement could then be announced afterwards or at a formal meeting on Friday.
The basis for the negotiations between the EU states is a proposal from the European Commission from April, which provides for individual paths for each country instead of uniform guidelines for debt reduction. This will enable large-scale public investments needed to combat climate change, transition to sustainable energy and modernize economies.
The proposals are controversial in the capitals. For example, the EU economic heavyweights Germany and France entered the negotiations with very different positions. Berlin, for example, insisted on uniform guidelines for debt and deficit reduction for highly indebted countries – a demand that Paris rejected for a long time. Recently, however, the neighboring countries became closer. According to diplomats, it remains to be seen whether this will lead to an agreement between all countries. Italy, for example, does not want to accept strict, uniform rules.
Rules currently in force
The current rules stipulate that debt should be limited to a maximum of 60 percent of economic output and budget deficits should be kept below three percent of the respective gross domestic product. Due to the Corona crisis and the consequences of the Russian attack on Ukraine, they are temporarily suspended until 2024. So far, states have normally had to repay five percent of debts that are above the 60 percent mark per year.
A return to the old rules is seen as a threat to Europe’s economic recovery. In addition, the rules were often ignored even before the pandemic – including by Germany.
Effects of the German budget dispute
Despite the ongoing budget negotiations in Germany, Federal Finance Minister Christian Lindner (FDP) is expected at the dinner. Until recently, it was unclear whether the struggle over the German budget for 2024 would have an impact on the negotiations in Brussels.
The director of the Brussels think tank Bruegel, Jeromin Zettelmeyer, sees two options with regard to the German negotiating position. If Germany decides not to take on any new debt, Lindner can also remain tough in Brussels. Zettelmeyer said that Lindner could then argue something like this: “We have tried very hard, then you can do it too.” However, if the federal government takes on additional debt in the next few years, he believes Germany could reach the limits of European regulations. “In this respect, it could be that they also agree to more flexibility in Brussels, for example with regard to debt-financed climate investments,” said the expert.
Criticism of Lindner
Sebastian Mang from the Brussels-based New Economics Foundation warned Germany against further insistence on strict and uniform debt rules. The Constitutional Court ruling reveals the conflict between the current debt regulations and efforts to increase investment in climate protection. “However, Christian Lindner continues to advocate for similarly nonsensical, unworkable fiscal rules at the EU level. Doing the same thing over and over again and expecting different results is senseless and a waste of valuable time while the climate crisis continues to worsen,” Mang said . Green public investments could strengthen society and the economy and help ensure long-term debt sustainability.
The Federal Constitutional Court had declared a restructuring in the German budget to be null and void. This means that not only 60 billion euros are missing, which were planned over four years for climate protection projects and the modernization of the economy. There is now a gap of 17 billion euros in the budget for next year. The traffic light coalition in Berlin has been struggling for weeks to find a solution to the budget dispute.
Source: Stern
