EU’s Gentiloni Says Too-Restrictive Fiscal Rules Unrealistic

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(Bloomberg) — European Union Economy Commissioner Paolo Gentiloni pushed back against German demands for a review of the bloc’s fiscal framework, saying it’s not realistic to impose overly stringent rules on all member states. 

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Speaking in a Bloomberg Television interview, Gentioni warned that the commission’s proposal for how to overhaul the requirements on reducing sovereign debt should only be modified “with caution.”

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The group’s plan was designed to address perceived failures with the prescriptive approach used for decades before Covid-19 — which Gentiloni said “didn’t work.”

“I understand the German position, it is legitimate, but I don’t think it is realistic to impose too-restrictive common benchmarks,” Gentiloni said in Gandhinagar, India, where he’s attending a meeting of Group of Twenty finance chiefs. “The reality is that the situation is very different among European countries. And it’s difficult to have a restrictive benchmark fitting for everyone.”

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The revamp of Europe’s fiscal rules has pitted countries like France and Germany against each other, with the former seeking more flexibility in reducing debt levels and the latter arguing in favor of stringent, automatic rules.

The EU commission, the EU’s executive arm, unveiled legislative proposals for the reform in April and is aiming to reach a deal among member states this year. The pact was suspended during the Covid-19 pandemic and then again until the end of 2023 due to Russia’s war in Ukraine. 

The commissioner also said that the European economy isn’t facing stagflation as output is still expanding — even if only slowly. 

“We still have growth, and we expect in 2024 to have stronger growth. And we have an incredibly resilient labor market,” Gentiloni said. While an “incredibly positive tourist season” should fuel the services economy, the troubled manufacturing sector is also expected to resume expansion in the fourth quarter. 

The euro-zone economy is struggling to gain momentum after the shallow recession it endured over the winter. While headline inflation has been slowing thanks to lower energy costs, underlying price gains have been more persistent — keeping European Central Bank officials on edge. 

—With assistance from Kurien Abraham and Andy Clarke.