EU Says 'no Taboos' In Budget Rule Review

Strasbourg, France, (UrduPoint / Pakistan Point News - 19th Oct, 2021 ) :The EU on Tuesday launched public consultations on reforming its rules on debts and deficits, with big fights expected over how fast countries must reduce spending in the wake of the pandemic.

The rules -- calling for debt to be capped at 60 percent of gross domestic product -- have existed since 1992, but are often broken. EU member states have agreed they need to be fixed.

At the end of last year, 14 member states had debts over that limit, with France, Belgium, Greece and Italy with debt in excess of 100 percent of their GDP.

The process will involve tough discussions among member states with fiscal hawks Germany and the Netherlands reluctant to make it easier for countries to spend more.

France, Spain and Italy believe that cutting spending to pare debt can be counterproductive as it rips out the green shoots of recovery before they achieve long-term growth.

The European Commission, the EU's executive in charge of the debt monitoring, will carefully sound out member states, central banks and others to find a consensus on changing the rules.

"I am looking forward to an open and frank debate in the coming months, with many contributions -- and I hope, no taboos," said EU economy commissioner Paolo Gentiloni.

Debt reduction will be a central issue, Gentiloni told reporters in Strasbourg, arguing that cutting debt needs to be "both realistic and compatible with a sustainable growth strategy".

Commission Vice President Valdis Dombrovskis said the consultation must determine "how to square the circle" on reducing public debt and promoting investment.

The calls to change the rules gained momentum with the coronavirus pandemic when EU member states unanimously agreed they would have to blow a hole in their budgets to save their economies.

The spending rules, which also include capping public deficits at three percent of GDP, were suspended to allow governments to stave off economic collapse as the pandemic battered trade, investment and business activity.

The plan is to reinstate the pact for the beginning of 2023 with the new rules in place, though Dombrovskis admitted that the timeline to achieve this was tight.

One idea to find consensus is to exonerate public investments on decarbonising the economy from the debt cap, though even this could face fierce debate.