Stability Pact reform pleases Spain and France but not Germany


Brussels’ compromise solution for reforming the Stability Pact has not served to bridge the traditional North-South divide that has plagued the EU when it comes to economic policy. The new deficit and debt rules proposed by Ursula von der Leyen’s Commission satisfy Spain and France, but unnerve Germany, which is demanding more fiscal discipline, as the daily El Español explains.

A clash that highlights the enormous difficulty of finding an agreement before the Pact comes into force again in 2024. Von der Leyen’s plan is based on a precarious balance that tries to please both sides. On the one hand, it offers more flexibility and more time to put public accounts in order, as demanded by Paris, Madrid and Rome. To this end, multi-year adjustment plans will be designed to suit each member state, negotiated bilaterally between Brussels and the different capitals. These plans will initially last for four years, but may be extended to seven years if the government in question implements reforms or investments of European interest.

At the same time, to appease Germany, the Netherlands and the ‘frugal’ countries, the EU executive announced new semi-automatic fines for non-compliant countries. The maximum sanction foreseen in the current rules, which is 0.2% of GDP (2.4 billion euros in the case of Spain), is maintained. A punishment that has never been applied because it is perceived as “the nuclear option”.

For this reason, the reform will include additional fines, the amount of which will be much smaller (a maximum of one hundred million euros). This will allow them to be activated early when a member state deviates from its spending ceiling. And they will be more automatic, so that they will not depend as much on political manipulation as they do now.

For Economic Affairs Commissioner Paolo Gentiloni, in order to cure the sick (i.e. to lower the level of debt and at the same time preserve economic growth) a “sweet pill” must be combined with a bitter pill. “On the one hand, the debt reduction path is decided on the basis of a proposal from the country itself. And obviously it is a much more gradual and flexible path than that provided for in the current rules”, said Gentiloni.

The first vice-president, Nadia Calviño, considers that the European Commission’s proposal “is a good working basis”. A “balanced” plan that is largely inspired by the joint document presented by Spain and the Netherlands last April, according to sources at the Ministry of Economy.

About the Author

The Corner
The Corner has a team of on-the-ground reporters in capital cities ranging from New York to Beijing. Their stories are edited by the teams at the Spanish magazine Consejeros (for members of companies’ boards of directors) and at the stock market news site Consenso Del Mercado (market consensus). They have worked in economics and communication for over 25 years.