Deal on EU fiscal rules unlikely this year, say officials

By Jan Strupczewski

BRUSSELS (Reuters) – European Union governments look increasingly unlikely to reach a deal on new EU fiscal rules this year because their differences on the pace needed to consolidate public finances are too big, officials said.

On Friday EU finance ministers are to discuss changes to the rules, which underpin the value of the euro and are closely watched by financial markets. The aim is to agree a joint position, called a general approach, that would then be negotiated with the European Parliament early in 2024.

“I don’t think a general approach is possible before the end of the year,” said one senior euro zone official involved in the talks.

“We are too far apart on many issues, and some have not even been discussed,” said the official, adding that there was little time left given the need to prepare next week’s European summit on Ukraine and talks on the EU’s common budget.

“A deal on Friday is highly¬†unlikely,” a second official close to the talks said.

But officials said that even if there is no complete agreement, discussions based on a new compromise proposal by the Spanish presidency on Thursday evening and on Friday were likely to yield a convergence of positions, called a “landing zone”.

The rules have been suspended since 2020 but are to be reinstated from 2024. EU governments want to update them to reflect the new, post-pandemic realities of higher public debt and the need for large investment to prevent climate change.

Officials said a delay in a deal until early next year would not have much impact on euro zone fiscal policy in 2024 because draft budgets for next year have been constructed on existing Commission recommendations.

However it would leave less time for negotiations on the final shape of the rules with the European Parliament which will dissolve in April before elections in June.

“We are extremely close to a deal. There are differences and a few red lines, but with good will this could be done in some hours of serious negotiation,” a third euro zone official close to the talks said.

The rules, called the Stability and Growth Pact, limit budget deficits to 3% of GDP and debt to 60%, with disciplinary steps for those not cutting any excess fast enough. Many European governments far exceed the limits now.

The European Commission initially proposed that any decline in debt over four years should be acceptable. Germany insists on minimum annual amounts, called benchmarks, that would be the same for all, asking for a 1% per year minimum debt reduction.

Berlin also wants the new rules to say governments must aim for budget deficits well below 3%, creating a buffer to cover unexpected events. This would further limit the room for fiscal manoeuvre for national governments.

EU ministers also are haggling over the balance of power between them and the European Commission and how to effectively enforce the rules, But the main clash is over the numbers — how quickly the deficit and debt must be cut.

(Reporting by Jan Strupczewski; editing by Christina Fincher)