EU, impasse in negotiations on the Stability Pact. Breaking deficit limits

Despite hopes of a quick agreement on a new Stability and Growth Pact as early as this week, there was an air of caution, if not pessimism, among European representatives yesterday. Diplomatic negotiations in recent months have not produced any tangible commitment, leaving open the possibility that Finance Ministers, between Thursday and Friday, will be able to break the deadlock in discussions or, if not, that next week’s European summit will be called to intervene. . The underlying objective of the reform is to strike a balance between debt recovery and investment promotion. The Spanish presidency of the European Union, reports Il Sole 24 Ore, has prepared a second draft, but discussions have not seen significant progress since the last meeting of finance ministers in mid-November.

Generally speaking, the reform project proposes that for countries with a deficit of more than 3% or a debt of more than 60% of GDP, Brussels establishes a “technical trajectory” for public finances over a period of four years, extendable by three others. The objective is to reduce debt and keep the deficit below 3% of GDP. Furthermore, it aims to ensure that once the four-year period has elapsed, the debt continues to decrease. In case of serious deviations from this adjustment path, the required commitments may become more stringent. A European official put it this way yesterday: “Barring miracles, no agreement is expected. The Spanish presidency is making every effort with a view to Friday’s summit, but the path is still difficult. Germany is reluctant to make any concessions while France has reached its limit”. Among the main points of discussion are the parameters for imposing adjustments, with the French preferring the structural primary balance and the Germans insisting on the structural budget balance. Furthermore, there is debate about how to evaluate military spending when making adjustment decisions.

Another EU official noted the following: “In recent technical meetings, it became clear that the sector most concerned about the stability of public finances was still not completely satisfied with the text.” At the same time, some governments fear that debt and deficit escape clauses could become new binding parameters. The recent ruling by the German Constitutional Court, which declared extra-budgetary funds created by the federal government unconstitutional, has fueled concerns about German intransigence. While awaiting developments in the coming days, which could unlock negotiations between the Twenty-Seven on a text to be negotiated with the European Parliament, the president of the European Central Bank, Christine Lagarde, highlighted the need for transnational collaboration in a speech in Paris, without explicitly referring to the negotiations on the new Stability Pact, but suggesting a connection with the urgency of reform.

Source: IL Tempo