“The rationality of the budgetary rules in force in the European Union must be reviewed”

2023-12-07 12:15:07

Friday, December 8, the finance ministers of the member states of the European Union (EU) will strive to find an agreement in principle on the reform of budgetary rules. In their desire to finish before the end of the year with a discussion that began four years ago, the ministers are relying on a compromise text presented by the Spanish presidency. An agreement on this basis would reintroduce quantitative debt and deficit reduction targets similar to those currently planned, even if the new targets would be a little less demanding.

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This compromise neglects the need to have sufficient budgetary room for maneuver for quality public investments and to be able to adapt budgetary policies to short-term needs.

It is foreseeable that rules adopted on the basis of this compromise will, in the short term, have to be either reinterpreted according to circumstances or circumvented as has often been the case, or suspended as they have been for four years. Signs that this type of rule has reached a tipping point have indeed been accumulating over the past few years. Their rationality must be radically revised, because they are proving less and less capable of correctly regulating and coordinating the budgetary policies of the countries of the Union.

These rules, in their 2011-2013 version, had deleterious effects on revenues, public investments and the preservation of quality infrastructure. To the point of requiring a reinterpretation from 2015. Their application has become more and more complex over time. They have been suspended without interruption since the beginning of 2020 so that budgetary policies can provide adequate responses to the economic and social consequences first of the crisis due to Covid-19, then of the gas supply crisis.

Program blocked in Germany

Very recently, it is in Germany that the contradictions inherent in rigid budgetary rules have been best revealed. The parliamentary majority elected in 2021 agreed on an ambitious budgetary program for economic transformation. The adoption of this program required suspending the constitutional clause known as the “debt brake”. This clause is, in Berlin, the national equivalent of the European budgetary rule, even if it is a little more restrictive.

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For Parliament, this suspension was justified by the urgency of relaunching, following Covid-19, the investments necessary for the energy transition. But, on Wednesday November 15, a judgment from the Karlsruhe constitutional court invalidated this suspension. He thus blocked the transition program of the country which is the largest emitter of greenhouse gases in the Union, but also the country in the EU with the healthiest public finances.

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