Spain opens the door to an annual reduction of 1% of the debt to attract Germany to the fiscal rules pact. The finance minister of that country, the liberal Christian Lindner, has put fiscal orthodoxy as a red line for the new Stability and Growth Pact that will be reactivated in 2024 after almost four years suspended first due to the pandemic and then due to the war in Ukraine. The return of fiscal rules means that countries have to re-buckle their belts to reach 60% of the debt and 3% of the deficit compared to GDP, at most.

How to reach that figure is what the 27 Economy Ministers have been working on all this year and now the negotiation is in the final stretch. The economic vice president, Nadia Calviño, as president of the EU Council, has put a proposal on the table of her European colleagues in which she proposes an annual debt reduction, which is what Germany demanded. According to the proposal advanced by Bloomberg, countries would be obliged to go down 1% each year if their debt is above 90% (which is the case, among others, of Spain, which stands at 112.4%) and 0.5% if the debt exceeds 60%.

In the case of excess deficit, the document that Madrid has passed on to the rest of the capitals proposes an annual reduction of 0.5% of the primary structural deficit, that is, without taking into account the payment of interest. This nuance clashes with the approach of the frugal ones, led by Holland, who are betting that the decrease is based on the total deficit so as not to slow it down.

That will be the proposal that the Economy Ministers will negotiate at the meeting this Friday in which they intend to close a position that will serve to negotiate with the European Parliament and the European Commission, which did include in its initiative a minimum reduction for the deficit in the new organization of the Stability and Growth Pact, which sought to give greater flexibility to member states to have their accounts healthy in exchange for a more acceptable sanctioning regime. What has been eliminated as the negotiation has progressed is that there be a cap on fines in case of violations due to excessive deficit procedures – and which at the beginning of the talks reached 0.5% of GDP -.

The proposal that Spain has put on the table also includes Germany’s last condition, which wanted member states to be required to make adjustments to their deficit level even if it is below 3%.

With the text proposed by the presidency, it aims to attract Germany, which clashed especially with France, which showed concern that the new fiscal corset would represent a brake on the necessary investment in the EU to improve competitiveness.


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