European Economy Commissioner Paolo Gentiloni and German Finance Minister Christian Lindner on Monday (29 January) clashed over EU rules for national public debts and deficits, which the Commission wants to make more flexible, while Lindner insists on “verifiable” rues.
In November 2022, the Commission proposed country-specific plans for individual debt-reduction paths and a four to seven years adjustment period where debt levels do not have to be reduced.
After meeting with Lindner, Gentiloni underlined the importance of a reform of the EU’s economic governance framework, which includes the famous 60% target for public debt and 3% for public deficits (as a share of national GDP, respectively).
“As time goes by, it is only fair to look at how our framework has performed to keep what has worked well and try to fix what has not,” he said at an event of Berlin-based Hertie School.
“Namely, the fact that fiscal adjustment, the path was largely achieved by reducing investments with the consequence that the composition of public finances was not growth-friendly,” he said, adding that this was “part of the reason for the EU’s disappointing economic performance over the last decade”.
Highly indebted Italy, Gentiloni’s home country, has almost seen no economic growth from 2001 to 2019.
Lindner, for his part, called the conversation with Gentiloni a “frank and polite exchange of views”.
“It’s not a secret that we do not agree on details and all subjects, but I am happy to keep discussing and arguing on the needed reforms for the European Union,” he said at a press conference after the meeting.
How much leeway for the European Commission?
Lindner said that he wanted a “reliable path to reduced debt levels in Europe”.
“We want rules that are verifiable and not subject to political whim, and, jointly, we want to ensure that these rules are so realistic and flexible in their application that the states can also fulfil their investment needs,” he said.
As part of their reform, the Commission has proposed to introduce a country-specific “net primary expenditure” pathway which would be suggested by the Commission. Subsequently, national governments must submit plans to reach this pathway for debt reduction while ensuring public investments.
In November, Lindner warned of such “bilateral” application of debt rules. Some experts have questioned the legitimacy of the European Commission to negotiate public spending individually with member states.
At the Hertie School, Gentiloni acknowledged that their proposal would see “an increased role of the Commission”, adding that “there is also, mostly, an increased role for member states”.
“The principal is that you have a structural path of reduction of the debt and investments that should be proposed by member states,” he said.
“Of course, these proposals should take into account a reference framework that the Commission will provide, but the decision will be a national decision,” he added, stressing that also the Council, “not only the Commission”, will have to agree with the debt reduction pathway.
To borrow or not to borrow
During his speech, Gentiloni referred to the EU’s current challenges to industrial competitiveness. This would see challenges, he said, including high energy prices, foreign subsidies and attempts to attract European companies for production abroad, and the dependence on critical raw materials, notably from China.
To this, the EU had to respond “with a new industrial policy,” he said, stressing that this should not replace national industrial policy but complement it where necessary.
In a draft communication seen by EURACTIV, the Commission proposed introducing targets for industrial production in Europe by 2030 for key sectors for the green transition, speed up permitting for new production sites, and more flexible rules for member states when it comes to subsidising emerging technologies.
However, the document remained vague on renewed joint borrowing, which is firmly opposed by Lindner and several other national governments, who argue that existing funds from the EU’s ‘Next Generation EU’ programme can be redirected.
In an interview with the German newspaper Frankfurter Allgemeine Zeitung on Monday morning, Gentiloni argued that “we must – also as a signal to financial markets – avoid the impression that we are just shuffling existing money around”.
Speaking at the Hertie School on Monday evening, Gentiloni stressed that “we can’t use the same money for 25 different scopes,”.
“RePowerEU is using the remaining loans of NextGenerationEU, so the remaining loans of ‘Next Generation EU’ already have a destination,” Gentiloni said.
He also stressed that “the remaining loans will not be what we hear […] because several countries that did not ask for loans two years ago are asking for loans [now],” adding that he thinks there will only be about “€100-150 billion” left, not the over €200 billion currently in discussion.
[Edited by Alice Taylor]