France, Germany to discuss rigour of EU fiscal rules

France and Germany will discuss later this month how strict new EU fiscal and debt rules should be, to create a basis for a pan-European deal by the end of the year, the finance ministers of both countries said on Thursday.

The talks are part of a revision of the EU’s fiscal rules that underpin the euro and that financial markets are watching closely. The rules have been suspended since 2020 but are to be reinstated from 2024, and EU governments want to update them before they kick in again.

“A Franco-German initiative could lead to a mutual understanding among all EU member states,” German Finance Minister Christian Lindner said, echoing a widely held view among EU diplomats that once the bloc’s two biggest countries reach agreement, others will accept it too.

Lindner said before a meeting of EU finance ministers that French counterpart Bruno le Maire would visit him later in November to discuss the “level of ambition”.

The Stability and Growth Pact rules limit budget deficits to 3% of GDP and debt to 60%, with disciplinary steps for those not cutting any excess fast enough.

Many European governments far exceed the limits now, while also needing to invest to fight climate change.

The European Commission initially proposed that any decline in debt over four years should be acceptable. Germany insisted on minimum annual amounts, called benchmarks, that would be the same for all.

It is also pushing for the new rules to say governments should aim for budget deficits below 3%, creating a buffer to cover unexpected events.

Lindner told reporters that the idea of buffers on debt to GDP and annual deficits was acknowledged.

“So now it is about numbers, not only instruments so I am optimistic but much more work needs to be done,” he said.

EU ministers also are haggling over the balance of power between them and the European Commission and how to effectively enforce the rules.

French Finance Minister Bruno le Maire said ministers wanted a deal on new rules by the end of the year.

“The EU needs those new rules. The old ones are outdated, obsolete. We need to fund our investments, to guarantee the EU’s financial stability,” he said, confirming he would visit Lindner in Berlin soon. 

[Reuters]