France and Germany spar over future of EU budget rules

Germany and France have clashed over how strict the EU’s revamped budget rules should be, as the member states struggle to bridge their differences over the future of the region’s fiscal framework. 

Bruno Le Maire, France’s finance minister, said the imposition of automatic, uniform debt-reduction rules would be an economic and political error as he arrived for talks between finance ministers in Luxembourg on Friday. 

Shortly afterwards, his German counterpart Christian Lindner brushed those concerns aside. Lindner reiterated his demands for heavily indebted countries to cut public debt by 1 percentage point of their gross domestic product a year. He told reporters outside the Ecofin meeting that he wanted safeguards that “guarantee” falls in indebtedness. 

The public differences underscore the depth of the divide over reform of the EU’s Stability and Growth Pact, which Brussels wants to overhaul in a bid to better tailor the rules to individual member states’ economic circumstances. Paolo Gentiloni, the EU’s economics commissioner, on Thursday pleaded with member states to build bridges rather than “dig trenches”.

“We’ve already tried to impose automatic and uniform rules in the past: it leads to recession,” Le Maire said to reporters. Such a regime would hurt European production and growth, he added, while ignoring the sovereignty of individual member states.

The European Commission this spring tabled draft legislation that would rewrite aspects of the EU’s fiscal rules in the hope of making them easier to enforce and to offer better incentives for investments by member states. Under the reforms, the commission would strike individual debt-reduction plans with each EU capital, granting extra time to improve their public finances in return for reform and investment pledges. 

Berlin is wary of giving the commission too much discretion in bilateral negotiations, however. Commission officials share France’s scepticism about Berlin’s approach — which would also force less heavily indebted countries to lower their debt-to-GDP ratios by 0.5 percentage points a year — as too harsh.

Lindner insisted on Friday his demands were not “overambitious”, adding that automatic rules were “needed”. He has been seeking to corral support from other hawkish member states for a stricter regime than the one proposed by the commission, although his allies have not coalesced around Berlin’s specific debt-reduction rules. 

“Germany is not alone in its concerns and ideas,” Lindner said. Lindner also rejected calls from Brussels for extra resources to shore up the EU’s long-term budget. 

Work on the reforms has been progressing slowly under the Swedish presidency, which is preparing to hand over the six-month rotating post to Spain. 

Prime Minister Pedro Sánchez’s decision to call early elections in July has cast further uncertainty over the prospects for the reforms, as well as the goal of landing an agreed position between member states by the end of the year. 

Enforcement of the Stability and Growth Pact has been suspended since early in the Covid-19 crisis, but it is due to be reimposed at the start of 2024.