The top politicians traveled to a place that is considered a symbol of failure. They met in the Cidade da Cultura, a collection of halls for concerts and exhibitions on the outskirts of the Spanish city of Santiago de Compostela.
The complex looks as if it had grown out of the ground, its roofs curve like hills, its facades are made of natural stone. An impressive sight, but many Spaniards consider the “City of Culture”, which opened in 2011, to be a disaster: the complex was four times more expensive than planned – and yet was never completely finished. A planned opera house is still missing today.
In Santiago de Compostela, the ancient place of pilgrimage, Europe’s economics and finance ministers spoke about the future at the weekend. A big question was: What rules would allow their governments to spend money and take on debt in the coming years?
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This is one of the most important debates in the EU. And one of the most emotional. It threatens to open up old rifts from the time of the euro crisis: between rich and poor states, between North and South, between those who want to save and those who consider austerity to be dangerous.
Specifically, in Spain it was about a major reform of the Stability and Growth Pact. This stipulates that the EU states must limit their deficits to three percent of economic output and debt to 60 percent. After the start of the pandemic, Brussels suspended the pact.
It will apply again from 2024, but in a different form. The EU Commission and several countries want to weaken the rules, including France, Italy, Spain and Greece. Others insist on tough regulations, such as Germany, Austria and the Netherlands.
In the Cidade da Cultura they were all talking to each other. Paolo Gentiloni, the EU’s economic affairs commissioner, an Italian, called for haste. “We urgently need the new rules,” he said. As a reason, Gentiloni cited the shocks that Europe had experienced, first the pandemic, then Russia’s attack on Ukraine, and the associated high energy prices. In such a situation, he said, states need “space for investments.”
Christine Lagarde, the president of the European Central Bank, saw it similarly. “Europe must invest in green and digital technologies,” she said. And France’s Finance Minister Bruno Le Maire assured that he attaches great importance to healthy public finances, but believes that Europe needs to invest money in order to remain internationally competitive. These are sentences that German Finance Minister Christian Lindner probably wouldn’t have liked to hear.
The pact is about future technologies
A reform of the Stability and Growth Pact – that sounds abstract and technical, but in the end it is about the question of how the European states manage their budgets and financially cope with the major tasks of the future. The focus now is on different issues than in the euro crisis.
At that time there was a lot of discussion about social benefits, for example in Greece. Now it’s all about the climate-friendly restructuring of the economy, research into artificial intelligence and – after Russia’s attack on Ukraine – the modernization of armies. That’s why, say insiders, the tone of the talks here in Santiago de Compostela is not as tough as in negotiations after 2010.
So how far apart are the two camps – one led by Germany, the other by France? So the group that demands thrift and the group that wants to spend more money? When Lindner was asked this in Santiago de Compostela, he laughed and replied: “Some say so, others say that.” Then he vaguely added: There is still a lot to discuss between the governments.
In confidential discussions, officials from other EU states – from the north and the south – became clearer to WELT. It is said that the negotiations are completely deadlocked. It must be expected that there will be no agreement on new debt rules this year. The old divides between north and south continue to exist almost unchanged.
Nobody wants the negotiations to fail. Because in this case, the old rules would apply again from 2024. But they never worked properly. Many states simply ignored them. And the EU never once enforced it. Since the Stability and Growth Pact was launched more than 25 years ago, the Commission has opened 37 cases against countries that took on too much debt. 37 times the matter ended without consequences.
This is one of the reasons why Brussels is now calling for a new set of rules. The familiar values – three percent for deficits, 60 percent for debt – remain. But the Commission wants to be more flexible in the future as to how exactly the burden should be reduced.
Financial expert Stephen Jen
She no longer wants to prescribe uniform rules across Europe, but would rather negotiate what she calls “individual paths” to reducing debt with each country, i.e. decide on a case-by-case basis. Different in Germany than in Italy, France or Greece. Such an approach would give the authority a lot of political leeway.
Germany doesn’t think much of it, wants to limit the Commission’s power and have binding rules for all EU states. According to the plans from Berlin, governments should, for example, ensure that the growth in spending is lower than the growth in the economy under normal conditions. Germany proposes a percentage point as the difference between the two rates.
France fears that austerity measures that are too harsh could have negative consequences for economic growth. Lindner and Le Maire often offer the public a show of German-French unity, but not in Santiago de Compostela, not on the issue of debt.
17 trillion euros in debt
It could be because France is far exceeding the limits of the Stability and Growth Pact. The country’s debt ratio is higher than 110 percent. According to the Commission, a total of twelve EU states are above the 60 percent target. This also includes Germany. But in the Cidade da Cultura in Santiago de Compostela, Lindner at least announced that Berlin would stick to its own recommendations and reduce the quota.
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