EU civil war: States turn on each other over budget – France mocks frugal Dutch

Bruno Le Maire claims EU citizens 'want more sovereignty'

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The more frugal EU countries, with the support of German Chancellor Angela Merkel, are calling for a return to stable fiscal policies. But southern countries in the bloc such as Spain and Italy, as wel as France, are calling for substantial reforms to avoid a return to pre-pandemic rules.

Nadia Calviño, Spain’s minister in charge of economic affairs and digitalisation, told Politico the bloc’s rules “were not fit for purpose before the pandemic hit us”.

She added: “It would be wise to review these rules before we go back to the normal situation.”

Speaking at an event in Lisbon organised by the outgoing Portuguese Council presidency, which also featured Ms Calviño and Economy Commissioner Paolo Gentiloni, French Economy and Finance Minister Bruno Le Maire said: “Common debt should be a more permanent tool for investment in Europe, particularly in the climate transition.

“With a necessary corollary: member states must respect their commitments in terms of public finances and quality of public spending.”

In a nod to frugal countries’ reluctance to reform fiscal rules, Mr Le Maire mocked the Dutch at the event.

He joked: “I really think that we need [this] kind of meeting.

“Next time maybe you could invite the Dutch finance minister, just for the sake of having a little bit of fun among us.”

Paolo Gentiloni warned differences between northern and southern states are a risk worth taking in order to reach an agreement.

He said: “The risk of differences is there — you could even argue the risk is stronger if you don’t open the debate on the rules.”

And the debate is already ongoing, along with preparation from both camps on how to best put their feet down on the issue.

Two weeks ago, Austrian Chancellor Sebastian Kurz sought to build a team of EU rebel countries that would prevent a softening of the bloc’s budget rules when they come under review later this year and in 2022, calling for a stronger focus on reducing public debt.

In a letter to EU counterparts, Austrian Finance Minister Gernot Bluemel said the rules had been central to reducing debt-to-GDP ratios across the bloc after the sovereign debt crisis.

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Austria is among a group of EU countries often seen as frugal, along with Sweden, Denmark and Finland, the Netherlands, Germany, the Baltics, Slovakia and the Czech Republic.

Mr Bluemel wrote in the letter: “A key lesson after the financial crisis was the need to reduce high debt ratios and increase fiscal sustainability in order to prepare for unforeseen future events.

“The Commission will come up with a review of the economic governance framework in the coming months.”

He added some ideas for reforms of the EU’s Stability and Growth Pact were presented at a ministerial meeting last month.

He continued: “I am somewhat concerned about some contributions questioning a rules-based framework or diluting the value of sustainability.

“Our common objective must be a reduction of debt to GDP ratios over the medium- and long term.”

Some senior EU officials said the rules, which have already been revised three times and become increasingly complex, should be simplified and focused on criteria that finance ministers can directly control, like public spending and debt.

But others say the rules should promote investment, which is key for growth, and therefore possibly exclude it from calculations of budget deficits, which now cannot be higher than 3 percent of GDP.

Some senior officials also say, rather than targeting their debt-to-GDP ratios, governments should focus on debt servicing costs.

They argue because interest rates are likely to stay very low for a long time, what a country spends on debt servicing is a better measure of debt sustainability.

But Mr Bluemel cautioned against that view.

He wrote: “Even though the current financing environment is undoubtedly favourable and the interest rate-growth differential was negative over the past years before the crisis, there is no guarantee that this will always be the case.

“We all have witnessed the economic, social and political costs of swings in market sentiment, when policies and developments were deemed no longer sustainable.”

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