France and Germany spar over future of EU budget rules

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

French Finance Minister Bruno Le Maire, who arrived for talks between finance ministers in Luxembourg on Friday, said imposing an automatic, uniform debt-cutting rule would be an economic and political error.

Shortly after, his German counterpart Christian Lindner allayed those concerns. Lindner reiterated his demands for heavily indebted countries to cut their public debt by 1 percentage point of their GDP per year. He told reporters outside the Ecofin meeting that he wanted safeguards that “guaranteed” indebtedness.

The public differences underline the depth of division over reform of the EU’s Stability and Growth Pact, which Brussels seeks to overhaul to better tailor rules to individual member states’ economic conditions. EU Economics Commissioner Paolo Gentiloni urged member states on Thursday to build bridges instead of “digging trenches”.

“We have already tried to introduce automatic and uniform rules: it leads to recession,” Le Maire told reporters. Such a regime would harm European production and growth, he said, while ignoring the sovereignty of individual member states.

The European Commission this spring introduced draft legislation that would rewrite aspects of EU financial regulations in the hopes of making them more enforceable and providing better incentives for investment by member states. Under the reforms, the Commission will strike individual debt-reduction plans with each EU capital, given extra time to reform their public finances in return for reform and investment pledges.

However, Berlin is wary of giving the Commission too much discretion in bilateral negotiations. Commission officials share France’s skepticism about Berlin’s approach – which would force less indebted countries to reduce their debt-to-GDP ratio by 0.5 percentage points per year – as too harsh.

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

“Germany is not alone in its concerns and views,” Lindner said. Lindner also rejected Brussels’ demand for additional resources to boost the EU’s long-term budget.

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

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

The operation of the Stability and Growth Pact has been suspended since the beginning of the COVID-19 crisis, but is to be re-implemented in early 2024.