Stability pact, nocturnal Ecofin: perhaps agreement at the Immaculate Conception

The agreement by today’s meeting is given at 51% but Spain wants to close. France and Germany close to 90%

EU finance ministers have locked themselves in the Europa Buildingin Brussels, by order of the Spanish presidency, which aims to bring them to an agreement on the reform of the stability pact, forcing them to a nocturnal negotiating marathon. The goal is to reach an agreement, perhaps on the day of the Immaculate Conception. “We have already warned the ministers that the night will be long”, warned, vaguely threatening, the Spanish Economy Minister Nadia Calviño, who tomorrow morning will most likely be indicated as the new president of the EIB, as anticipated by the Portuguese minister Fernando Medina.

Spain wants to reach an agreement tonight

“Our objective is that there is a political agreement in this Ecofin meeting” on the reform of the stability pact, the minister said. The chances of reaching an agreement are given at “51%” by the Commissioner for Economy Paolo Gentiloni, who recalled the need for the Commission’s proposal not to be distorted too much: work will be done, he said, to ensure that it remains “balanced” and that “overcomplications” are avoided. Several ministers said they were optimistic about the possibility of an agreement, but not all: the Finnish Rikka Purra, of the Perussuomalaiset (the True Finns Party), said she was not “very optimistic”, because “there are several open problems”, but “we will do our best,” he added.

France and Germany agree 90%

On the other side of the political spectrum, Portugal’s Fernando Medina, a socialist, also said he thought there was still “work to be done” to reach an agreement. French Economy Minister Bruno Le Maire made it clear that France also accepts the second safeguard wanted by Germany, which brings the deficit/GDP threshold to 1.5%, under “normal” economic circumstances. Germany and France agree on “90%” of the main chapters of the reform: a “10%” remains to be agreed.

In particular, Le Maire explained, France requests that the countries that end up in proceedings for excessive deficit, i.e. certainly Italy and France but also others, be allowed additional flexibility, compared to the 0.5% annual adjustment of the structural deficit , so as to be able to make the “investments” that are necessary if we want to avoid Europe being left further behind by the USA and China. German Finance Minister Christian Lindner said he was optimistic about an agreement on the reform, but clarified that Germany does not agree with the change to the rules that apply to the countries under procedure.

Berlin managed to impose the introduction of two numerical safeguards, one on the debt and the other on the deficit, horizontal, which make a picture more complicated that, originally, should have become simpler. The safeguards are described in two dedicated articles, drafts of which are circulating in Brussels: in particular, an annual improvement in the primary structural balance is requested to reach the required deficit equal to 0.3-0.4% of GDP, which is reduced to 0.2-0.25% of GDP in the case of an extension of the adjustment period from 4 to 7 years.

Germany requests that the adjustment be on the structural balance, not on the primary one which is net of interest expenditure. Le Maire agreed that the adjustment should be calculated on the structural deficit, but asked for a flexibility of 0.2%, to make the adjustment less onerous and to be able to make the investments essential to avoid being definitively outclassed by the USA and China.

Gentiloni: “No to austerity”

In the EU, Commissioner Gentiloni underlined, “we do not need austerity rules”, but “of rules that allow a gradual reduction of debt and at the same time leave room for investments essential for economic growth. Therefore, he added, “we will work to have this solution, which is the balance that was the basis of the Commission’s proposal. It is very important to reach an agreement” on the reform of the stability pact, “as a sign of responsibility towards the markets, but also towards public opinion”.

We will see overnight whether the ministers will be able to reach an agreement on the reform, necessary to archive the ‘old’ stability pact, which contributed to causing the EU’s backwardness compared to the United States of America, mercilessly revealed by the pandemic of Covid-19, which Europe has overcome only thanks to the vaccines developed by Big Pharma, largely Anglo-Saxon (BioNTech was German, but without Pfizer it would never have been able to produce the drug on the scale necessary for mass vaccination).

As Jeremy Shapiro and Jana Puglierin of the European Council on Foreign Relations noted last April, in terms of GDP, in the last 15 years the United States has surpassed the EU and the United Kingdom combined. In 2008 the EU economy, which also has many more inhabitants than the transatlantic giant, was slightly larger than the American one: 16.2 trillion dollars, compared to 14.7 trillion dollars. By 2022, the US economy had grown to $25 trillion, while the EU and UK, combined, had only reached $19.8 trillion. The US economy “is now almost a third larger. It is more than 50% larger than the EU without the UK.” We’ll see if the night brings advice.