Stability Pact Reform, the “long night” and the dawn of the new Europe

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(Finance) – The negotiations on the Stability Pact enter their final phase, not without moments of complexity. In the discussion between EU Finance Ministers on the reform of the Stability Pact, which will begin this evening at an informal dinner in Brussels, with the aim of closing negotiation with a final agreement during the Ecofin of tomorrow, the Spanish presidency has put on the table a text for a possible compromise that modifies the Commission’s original proposal on several points.

In particular, the Spanish summary includes two additional articles, 6bis and 6ter, which concern the “safeguards” for the debt and deficit requested mainly by the Germans (but with the support of the Dutch and Nordic countries). The Commission’s original proposal focused on two points: when public debt is above the Maastricht threshold of 60%, a “tailor-made” budget adjustment path for each Member State was indicated for four years (or seven years if there are reforms and investments in the sectors recommended by the EU). The adjustment path, decided taking into account an analysis of debt sustainability, was based on a single indicator: that of “net primary expenditure”, which cannot increase more than the actual growth rate recorded each year by the country in question. The second point of the Commission’s proposal was the deficit rule: for countries with a deficit/GDP ratio above 3%, a structural budget effort of 0.5% of the budget was envisaged. GDP per year to reduce the deficit.

To this extremely simplified structurea (especially compared to the existing Stability Pact, which has never been fully applied), the Spanish compromise proposal added, among other things, an obligation to reduce debt/GDP by at least one percentage point for countries (such as Italy) with a debt exceeding 90% of GDP, and at least half a percentage point for member states with a debt/GDP ratio between 60 and 90 percent. Furthermore, for countries with a debt/GDP rate above 60% and/or with a deficit/GDP above 3%, the Spanish compromise text provides for an additional double safeguard clause: 1) the continuation of the path of reduction of the deficit even when the deficit/GDP threshold of 3% is reached, so as to create a “resilience margin” equal to 1.5 percentage points of GDP (essentially, instead of 3%, the deficit/GDP target GDP would become 1.5%, but this only “under normal economic circumstances); the obligation to reduce the structural primary budget balance by 0.3 or 0.4 percent every year during the four-year adjustment paths and 0.2-0.25 percent during the seven-year adjustment paths (the suggested percentages could be modified). These safeguards added in the compromise (Articles 6bis and 6ter) were also substantially accepted by France, which however proposes, on the other hand, to reduce by two tenths of a point, from 0.5 to 0.3 percent, the annual structural budgetary effort imposed on countries with a deficit/GDP above 3%, when these countries undertake to do investments and structural reforms in the areas recommended by the EU. This is a proposal that Paris sees as indispensable (a “red line”), but which still finds strong opposition by Germany.

“It will be a long night”, that of the discussion between the ministers EU finances on the reform of the Stability Pact. The current president of Ecofin, the Spanish minister, said this Nadia Calvino, speaking to the press upon her arrival at the Eurogroup meeting this afternoon in Brussels.”Today – said Calvino – we will begin this last meeting of the six-month Spanish presidency of the Ecofin Council with a working dinner, in which we will address the ongoing reform of the budget rules with the rest of the member states. It’s a job that we’ve made progress and intensified over the last week contacts at a technical and political level: there have been more than 40 multilateral meetings, and practically constant bilateral contacts.