Germany’s finance minister has warned that EU states are failing to bridge their differences in contentious talks over reform of the bloc’s fiscal rules, denting hopes of a deal by the end of the year.
Christian Lindner’s remarks to the Financial Times suggest he is not backing down from demands for a steeper reduction in public debt, setting the stage for a showdown with countries like France and Italy that want a more flexible regime.
“There is still no landing zone — a solution that convinces everyone,” he said.
The European Commission wants an overhaul of the Stability and Growth Pact that would, for the first time, enable debt-reduction agreements to be reached directly between Brussels and national capitals.
Germany is wary of giving the commission too much latitude for discretion in bilateral negotiations, however, and would prefer firmer rules.
Lindner claimed his critical stance on the commission’s proposals had support from other hawkish EU capitals, and warned that the reform must ultimately reflect the importance of stable public finances. “I can’t imagine a review of fiscal rules which doesn’t take Germany’s proposals into account,” he said.
The German finance minister, who described himself as a “friendly hawk”, also rejected demands for fresh cash for the EU budget, which has come under strain from expenses related to the war in Ukraine.
“We should set new priorities for the money we still have available before the EU asks the member states for more,” he said.
Enforcement of the existing budget rules has been suspended since the early months of the Covid-19 pandemic in 2020, but they are due to kick back in next year.
The question of how to reform the pact is shaping up to be one of the most contentious issues facing the bloc this year, reigniting long dormant disputes between doves and hawks over how member states’ budgets should be managed.
Lindner’s tough line has prompted rising frustration in some capitals. “If it wasn’t for the German position we would have had a deal by now,” said one European official.
Spain, which takes over the EU’s six-month rotating presidency in July, is hoping to land an agreement by the end of the year, but prime minister Pedro Sánchez’s decision to call elections this summer has damped expectations.
Both sides agree the EU faces a huge dilemma on how to bring down debt levels that soared during Covid and the war in Ukraine, while also giving member states enough freedom to invest in combating climate change and repairing crisis-hit economies.
Berlin was not the only capital to criticise the commission’s proposals: Rome has complained about investments not being given sufficient weight in growth calculations while Paris said it was opposed to automatic deficit and debt reduction requirements, calling them ineffective.
Lindner, leader of the pro-business Free Democratic party, which is part of Olaf Scholz’s three-way coalition, said other European countries had wrongly assumed that Berlin would become more dovish on fiscal policy after the departure of Angela Merkel. Merkel governed the country for 16 years and guided its hawkish response to the eurozone debt crisis.
“A lot of people thought that just because Germany now had a social democratic chancellor and the Greens were in government, it would give up its commitment to stable public finances and pursue other ideas,” he said. “But that’s not the case.”
Lindner wants a rule stipulating that the debt-to-GDP ratios of heavily indebted countries come down by 1 percentage point each year, a demand that some member states have rejected as too harsh. Germany also envisages less heavily indebted countries lowering their ratios by 0.5 percentage points a year.
The minister denied Germany was isolated on the issue. “Even if others are quieter, you shouldn’t misinterpret that as meaning they don’t agree with us,” he said. “We have a lot of other countries on our side.”
Asked if he could compromise, Lindner demurred, saying Germany had “already met other member states halfway”.
For example, Berlin agreed to scrap an existing, potentially more onerous, requirement that member states reduce their debt-to-GDP ratio each year by at least one-twentieth of the difference between the current level and the EU’s 60 per cent target.
Lindner denied that he was on a collision course with Brussels. “It’s not about having a fight with the commission or with other member states,” he said. “It’s about trying to convince everyone that the current debt ratios are just too high.”
Germany had, he said, been “very constructive from the start, very realistic”. “We’ve come a long way,” he added. “But the result of the reform . . . must be defensible. Above all, the new fiscal rules can’t just be made up of exemptions.”
Lindner said countries with unsustainably high debt had been downgraded in the past, and that had caused “ripple effects across the whole of the eurozone’s fiscal architecture”.
One German official said Lindner’s hardline tone masked the fact that Berlin and Brussels have moved much closer to each other in recent months. “He has to hang tough — but every German finance minister has to do that,” he said.
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