There are just 66 days left until the New Year, just over nine weeks for the Member States, under the Spanish presidency, to reach an agreement on the reform of fiscal rules. If achieving an understanding seemed complicated in July, very difficult in September and a chimera in the recent Ecofin in October, now, when it also begins to be mixed with issues as divisive as the review of the Union Budget, it begins to become almost impossible.
The urgency is real, because without the reform of economic governance, which also requires negotiation with the European Parliament, the rules of the Stability Pact will be applied again in 2024, when the so-called “escape clauses” are deactivated, which have allowed since the outbreak of the pandemic that countries spent, went into debt and accumulated deficits without any type of fiscal restraint. And the pressure from some capitals, institutions and even the ECB is also real, whose president Christine Lagarde insisted again this Friday in Brussels, during the Euro Summit session with the heads of State and Government that it must be a priority absolute, pressing.
The topic, however, remains blocked. Germany, dissatisfied with Nadia Calviño’s way of handling the process, continues to demand that there be mandatory numerical references for all countries in the new framework. That is, everyone has to reduce their deficit and debt by a specific amount to be defined if they exceed the 3% limit, but also that they have to make annual structural efforts if they are below, to avoid living on the limit. The general spirit of the reform is that it has evolved towards individualized adjustment paths, that the countries feel represented in its composition, as has been done with the recovery plans to access the Next Generation Funds in exchange for reforms and investments, to change to more realistic and effective punishment systems and fines. But Berlin and the most orthodox say no. The discussion is not moving forward and although France has decided to try to resolve it as always, in a bilateral and parallel negotiation with Germany, since both represent the two maximum opposing positions on many of the issues, the clock is ticking.
As if that were not enough, the fight has been mixed with another, further straining the atmosphere. In June, the European Commission asked capitals to contribute almost 66 billion additional dollars to face the increase in the Union’s financing costs, following the repeated rate increases by the European Central Bank, and to alleviate the effects of inflation. Plus another 33 billion in loans guaranteed by the Budget to sustain financial aid to Ukraine. The EU makes its Multiannual Financial Framework for periods of seven years (2021-2027), and now it is time for a mid-term review, and the conclusion is that what happened in this legislature has thrown everything off balance. First a pandemic, then a war, and then an energy crisis. The bills are not working out and resources are needed quickly.
The sides are more or less the same as always. Countries like Spain are in favor, but the frugal, orthodox or hawkish, radically against it. “We have debated the MFF. The circumstances have changed compared to the moment in which it was agreed in 2020 with new challenges and the Spanish presidency has been promoting the issue for some time. It is a complex and open debate and a political orientation has been given to reach a agreement before the end of the year. It is the objective shared by the presidents and is closely related to the Stability Pact,” President Pedro Sánchez said today.
In a document prepared by the Spanish presidency and distributed to governments, it is highlighted that “in a context of increasingly strained national budgets, several Member States request a more specific review and finance part of it through redistributions within the existing EU budget , using unallocated funds and cutting specific programs. It is a possibility, but, the paper continues, the Commission has “confirmed that financing its entire proposal with funds available in the current budget, once legal commitments have been deducted, would imply an overall cut in programs of more than 30 %”.
Right now there is an impasse. “Following its in-depth exchange of views on the proposed review of the multiannual financial framework 2021-2027, the European Council invites the Council to continue working with a view to reaching a general agreement before the end of the year,” the written conclusions limit themselves to saying. of the meeting. There are general slogans that the division is too big, for pure finance or for other reasons, as with Hungary and its formal opposition to giving more money to Ukraine.
Berlin is clear. “I am convinced that the possibilities offered by the reprioritization of the European budget’s spending programs have not yet been exhausted,” Chancellor Olaf Scholz said upon his arrival at the summit on Thursday. Denmark has presented a non-paper that points to 16 billion euros in resources allocated but that have never been used, and should be used. Sweden has presented a document, obtained by Politico, in which it says that cutting existing EU spending programs by just 4% on average could raise up to €25 billion, enough to cover all or almost all of the cost. of the increase in interest on the debt, which amounts to between 17,000 and 27,000 million. The bulk of the cuts, in that proposal, would fall on Horizon EU, the EU research program, and on the NDICI, the instrument that finances foreign cooperation.
Other countries such as Belgium, Finland or Austria, orthodox, frugal or simply net contributors, maintain the same thing, that they already contribute too much, that they are at the limit of their capabilities and that more challenges must be faced, but it can be achieved by reviewing the items. assigned not already committed, because it is a question of effectiveness, management and priorities. “I would certainly advocate maintaining that level of contribution [but it is] too early to say whether there will be even more contributions,” the president of the Eurogroup, the Irishman Paschal Donohoe, said this Friday. Dublin neither wants to increase contributions, which is 73% of the Budget, nor the so-called “EU own resources”, which are obtained from a few taxes at European level, such as customs duties and levies on sugar and isoglucose (accounting for approximately 15% of revenue) or a small percentage of VAT collection (12% of the total).
Meanwhile, to the East and in the Baltics, the debate has another color. Estonian Prime Minister Kaja Kallas has reiterated that she is in favor of raising taxes if necessary to support defense spending, as well as cutting spending on other existing programs that she considers non-vital. “The only issue that is pressing is that of Ukraine,” say diplomatic sources from the countries most reluctant to new contributions. “There is an urgent deadline for their help in 2024, but everything else can be achieved by adjusting from other sides,” they say. Tightening the belt now or in the next three years.