Stability Pact, reform accelerated: extraordinary Ecofin at the end of November

The changes must be agreed by the end of the year to avoid the return of the old rules. Italy slows down on deficit constraints

The 27 EU member states are trying to tighten up reform of the stability pact, which must be agreed by the end of the year to avoid the return of the old rules, suspended in March 2020 and now considered inadequate by many. The Spanish Economy Minister Nadia Calvino, at the end of today’s Ecofin meeting in Brussels, announced that she intends to convene a Ecofin extraordinary at the end of November, with the aim of closing the agreement on the reform in the December Council. In today’s Ecofin, Commission Vice President Valdis Dombrovskis said, “we have made further progress” in the process of reforming the Stability Pact, “as the Spanish Presidency has worked tirelessly towards an agreement”.

German Finance Minister Christian Lindner, who is also the leader of the FDP, a party that is paying a heavy electoral price for remaining in coalition with the SPD and the Greens and which therefore has the political need to emerge from this match with a usable result in front of his electorate, he seemed more optimistic than in the past: “My optimism has grown – he said – that we can manage to have a political agreement this year. If we manage to transfer it into a legal text, it is still an open question.” Lindner added that there is still “a lot of work to do” on the “numbers.” Calvin, taking up the metaphor of the Camino de Santiago, said that “like the pilgrims, we begin to see the cathedral at the end of the journey”.

Germany’s demands

In fact, LGermany asked for and obtained to insert two requests into the ‘landing zone’: one minimum annual threshold for reducing the debt/GDP ratio for countries above 60% and a minimum annual threshold for reducing the deficit. Obviously, the figures that will be included to accompany the two parameters will be crucial. The Spanish presidency seems intent on implementing the two German requests, while providing figures that are as least punitive as possible.

Italy: no to reform at all costs

Italy, which is the opposite pole in the negotiations compared to Germany, does not close, but does not appear willing to approve any reform: if the new rules are worsening, is the reasoning, then it might as well keep the old stability pact. Obviously we are negotiating and will continue to negotiate, and a lot will depend on the numbers, but for the country it appears It is particularly problematic to accept a minimum annual deficit reduction thresholdas Germany requests, an element that gives rigidity to a system that should have been more flexible.

Furthermore, this would once again complicate the regulatory framework, when one of the declared objectives was to make it simpler compared to the old pact, made up of very complicated rules, incomprehensible to the general public and therefore very difficult to communicate effectively. For Calvino, the backbone of the system remains “the country-specific spending paths in the medium term: this is the core and backbone of the landing zone, with a series of safeguard measures that will obviously continue to guarantee the balance between the objective of reducing debt and the deficit/GDP ratio and supporting growth, encouraging investments and reforms that respond to European needs”.

As for the debt reduction, Italy agrees with the objective, having a debt/GDP ratio second only to that of Greece, as long as it is sustainable for the national economy: the treatment must not kill the patient. The door, however, is not closed: negotiations will continue in the coming weeks. The Spanish minister said she had not heard “from any member state” expressing a preference for a return to the old rules.

On the contrary, reported the Spanish politician, “I saw a consensus, a unanimous commitment from all member states to reach agreement on the rules as soon as possible, so that we can actually witness the transition during 2024 and give trust in markets and citizens”.

For Calvino, “a broad agreement is emerging on the constituent elements of the framework, on the mechanisms that should be established to guarantee the application of the new rules and also on the guarantees that must be integrated into the system. What remains, obviously, is the implementation point of detail and calibration”. Meanwhile, Germany and France continue to negotiate bilaterally: Bruno Le Maire and Christian Lindner will also meet next week to seek a “French-German agreement” for the reform of the stability pact. These bilateral negotiations, for the Spanish presidency, are useful in finding an agreement and do not diminish Madrid’s role as mediator.

Negotiations will therefore continue at full speed in the coming weeks. For Calvino, “an agreement will not be reached until everything is agreed”, but today’s exchange highlights “the significant progress we have made in recent weeks and paves the way towards a balanced package”. To achieve the objective, “in the next few days we will disseminate the corresponding legal text proposal and we will accelerate: we will work at a technical level, with the intention of convening an extraordinary Ecofin towards the end of November. We will continue to work together and listen very carefully the opinions of all member states, with a view to concluding the agreement in the December Ecofin”.