LUXEMBOURG – The fiscal positions of the Netherlands and Spain are about as far apart as they could be, with The Hague sailing steadily below the EU’s 60% debt-to-GDP ratio threshold, and Madrid nearly doubling this digit.
Yet the two countries came together on Monday ahead of an ongoing review of EU fiscal rules, seeking an EU-wide consensus in what has largely been a ‘thrifty North versus lavish South’ debate. .
“We have to leave behind the old trenches and the old debates of the past,” Spanish Deputy Prime Minister and Finance Minister Nadia Calviño told POLITICO. “Now is the time to build, on the basis of consensus, a credible and realistic approach.”
“That means our rules have to take into account that the debt-to-GDP ratios in all European countries are very different from what we had before the pandemic hit us,” she said. “Europe must undertake a massive investment effort to ensure our strategic autonomy in this new geopolitical context. It is a fact.”
“The political point here is not to waste energy and time on superficial differences. Let’s focus on common ground, build from common ground,” said her Dutch counterpart, Sigrid Kaag, during a press conference on Monday.
The debate over fiscal rules has lost some urgency since the European Commission signaled earlier this year that it would likely extend the so-called blanket escape clause for another year until 2023, meaning that countries would not have to comply with – and probably violate – current fiscal rules. rules for a little longer. But both believe the debate should not lose momentum.
“Regardless of whether or not the general escape clause is extended until 2023…it’s really high time” to have this debate, Calviño said.
The two countries clarified their common ground in a joint document published on Monday on the sidelines of a meeting of eurozone finance ministers in Luxembourg. They call on EU countries to define their own debt reduction trajectory in a way that is “realistic, progressive but ambitious, as well as compatible with economic growth and job creation”. They also recognize that “substantial public investment financed by the EU and at national level will be essential to attract private investment in strategic areas”.
This flexibility should be accompanied by “clear safeguards” to ensure enforcement and “a greater role for independent tax institutions” to ensure countries toe the line.
They also call for “a simple spending rule” that would make the rules more understandable and enforceable.
Translated into policy, this would mean giving countries more leeway over the pace of debt reduction and removing the requirement to reduce excess debt by 5% per year, in exchange for ensuring more consistent and stricter if countries go astray.
What the two countries do not say is how they differ: whether investments should be taken into account in the calculation of debt and deficit – the so-called “golden rule” advocated by France and Italy – or whether the EU’s “one-off” experience in joint issuance to deal with the pandemic should turn into something more structural.
Kaag dismissed both in a recent interview with POLITICO, while Calviño spoke of the need to preserve investments while reducing pandemic over-indebtedness.
“From the Netherlands, we don’t believe that the risks associated with off-budget types of investments where there may not be the same priority or definition burdens…is the wisest way to s ‘do it,” Kaag said.
But there will be time for disagreement.
“The starting point must be the elements on which there is broad consensus,” Calviño said. “The next step should be a proposal from the Commission. And we can have this discussion and look at the different options based on this proposal.”