Finance ministers dash for a deal as EU spending rules reform goes to the wire

PARIS ― An intense round of shuttle diplomacy starts Friday as finance ministers rush across Europe putting finishing touches to an emerging deal on an overhaul of the EU’s national budget rules.

In a sign that a compromise is coming together after months of stalemate, France’s Bruno Le Maire jets to Berlin for Friday afternoon talks with German counterpart Christian Lindner, before Italian Giancarlo Giorgetti flies to Paris Monday night to see Le Maire over breakfast the following morning.

“I believe that an agreement between France and Germany is a necessary step,” before the whole EU can strike a deal, Le Maire told POLITICO Friday morning. A compromise may be "a few more days" away. "We have brought our positions closer to each other, each of us has done a step in the other’s direction,” he said.

Negotiations between EU capitals have turned into a race against time because the rules, which govern the rate of debt and deficit reduction ― suspended to allow increased spending since the COVID pandemic ― will return in 2024 whether there’s an agreement on a reformed version or not.

The idea is for the new-look rules to be less arbitrary and better tailored to each country’s circumstances. Germany leads a group of governments demanding the retention of some fixed targets while France, Italy and others are pushing for greater flexibility. In that sense, it follows a decades-long pattern of North-South division over Europe’s economic strategy.

Le Maire’s and Lindner’s ability to meet somewhere in the middle will be crucial. “If France and Germany can agree, Germany can pull along the frugals while France can pull the southerns along,” said one EU diplomat, granted anonymity, like the others quoted in this article, to discuss the confidential negotiations candidly.

The Berlin-Paris-Rome diplomacy is meant to prepare the ground for talks among all the bloc’s finance ministers following an inconclusive meeting in Brussels last week. Formally, the process is still being led by Spain, in its role at the helm of the EU Council of Ministers. With the clock ticking, it hopes to circulate a compromise document in the days ahead and organize an exceptional meeting in Brussels for all finance ministers, tentatively penciled in for November 28.

Coffee, dessert

While the contours of a deal is coming into view, officials caution that there is still some difficult issues to be ironed out. “Le Maire’s mediation work will not be over after Friday’s meeting with Germany,” said a second EU diplomat.

The French-German axis may hold the key to getting a deal but other governments have made it known that they’re not too happy about being sidelined. According to two diplomats, when Le Maire told his fellow finance ministers in Brussels last week he was planning lunch with Linder, their Swedish counterpart asked whether she could come for coffee afterward. The Slovenian minister swiftly joined in, suggesting he attend for dessert.

The main principle of the spending rules, known as the Stability and Growth Pact, isn’t changing – governments will still be expected to keep deficits to 3 percent of economic output and debt levels to no higher than 60 percent.

But with concerns the old one-size-fits-all rules added complications to the eurozone crisis over a decade ago, the pace at which countries should hit those targets is still creating division.

One major bone of contention is the speed at which they will have to shrink public debt, with Berlin pushing for faster reduction and Paris wanting more leeway.

“We need more time” to reduce debt, said a senior French diplomat, arguing that EU countries shall have more fiscal margin to invest because “we are all in the same boat.”

Green transition

The weight of Germany’s argument received a blow on Wednesday when its top court ruled that Berlin’s decision to fund its green transition by reallocating €60 billion in unused debt in emergency loans, which were originally intended to help cope with the COVID-19 pandemic, was unconstitutional.

The level of annual deficit is also a sticking point with Germany wanting rules to keep annual spending below the 3 percent threshold by a certain margin.

Besides that, Rome has been pushing to make sure that certain investments, including those linked to the EU’s post-pandemic recovery plan, are better taken into account when assessing a country’s compliance with the new rules.

Half the bloc has good reason to fight for criteria that are not too strict. Thirteen countries, including France, Italy and Spain, are set to exceed the EU’s budget deficit threshold this year, according to a European Commission forecast published this week.

Barbara Moens contributed reporting. The article has been updated with Le Maire’s Friday morning comments.