We must succeed in reforming the rules of the Stability and Growth Pact (PSC) before the end of the year. This is one of the key messages to take away from the eurozone summit held in Brussels on Friday 25 March.
However, the 27 Heads of State and Government refrained from clearly stating how to rethink this set of rules, which frames the budgetary policies of the Member States and obliges them to keep their deficit below the 3% mark of gross domestic product. (GDP) and their public debt below that of 60%. And for good reason: the subject is far from being consensual, and different sensitivities are opposed.
A recurring North-South debate
The debate is not new: schematically, for years, the States of the South have insisted on putting an end to budgetary rigor, while further North, in Germany in particular, we do not want to hear the idea of making the CSP rules. The talks had “been on hiatus” because of the health crisis, then the Russian invasion in Ukraine: from March 2020, the “general derogation clause” of the Pact had been activated, in order to enable EU countries to best counter the economic and social consequences of the Covid-19 pandemic and of the war.
The European Commission has announced that the Pact will not be “frozen” only until the end of 2023. So it’s time to think about the future. And it already seems clear that the rules will no longer be applied in the same way as before 2020.
The need to regain control
At the end of the eurozone summit, President Emmanuel Macron indicated that France, which narrowly avoided crossing the threshold of 3,000 billion euros in debt in 2022, supports “the proposals of the European Commission in terms of economic governance”. The institution, which is none other than the great architect of European rules, unveiled its first avenues for reform in November 2022, which are based on a simplification of the rules and on the idea of guaranteeing the sustainability of public expenditure as well as possible, without curbing investments (which should be used to facilitate “green” and digital transitions – two priorities for Brussels).
“We have to start controlling the trajectory of public finances in Europe again, we cannot live on a proactive budgetary policy in response to the pandemic and the war, and on an accommodating monetary policy”believes Olivier Marty, who teaches European economics at the University of Paris.
Pending a proposal from the Commission
In mid-March, the finance ministers discussed the Commission’s ideas and adopted, despite strong German reluctance, conclusions effectively paving the way for a reform of the SGP. The ball is now back in the Commission’s court, which is due to unveil a concrete legislative proposal on the matter shortly. At the end of negotiations which already promise to be stormy, it is the Member States who will seal the future of these rules which have existed since 1997.
“France is very clearly a bad student in Europe in terms of the application of budgetary rules. And she doesn’t realize that it hurts her credibility and her aura. However, since the reform seems rather favorable to highly indebted countries, Paris should succeed in making itself heard during these negotiations.believes Olivier Marty, who fears in particular a « bras de fer » between Paris and Berlin.
A possible middle way?
In a note, Andreas Eisl, researcher at the Jacques-Delors Institute, also notes that “significant differences remain between the States concerning this reform, in particular on the choice to prioritize either expertise or quantified objectives to define the trajectories of budgetary consolidation”.
Germany demands “simple, clear and uniformly applied numerical rules”, France opposes this approach, which it considers “not sophisticated enough”. Will the Commission succeed in drawing a middle way acceptable to all States – “bad” as well as “best” pupils?