LDN - Business

France, Germany agree on 90% of changes to EU fiscal rules -France

[December 07, 2023] By Jan Strupczewski

BRUSSELS (Reuters) - France and Germany agree on most of the proposed changes to European Union fiscal rules but differ on the treatment of investment spending when the deficit is above EU limits, French finance minister Bruno Le Maire said on Thursday.

Speaking to reporters ahead of a key meeting of EU finance ministers that aims to produce a deal on changes to EU fiscal and debt rules, Le Maire said the ability to maintain investment was crucial for Paris, a "red line".

"I consider that France has taken every necessary step towards Germany to reach a compromise, we are 90% in agreement," he said. "The only question that remains open between France and Germany is what do we do for excessive deficit procedures."

Under EU rules, which set a limit of 3% of GDP on budget deficits and 60% of GDP on public debt, when a country breaches the deficit ceiling it must cut the deficit by 0.5% of GDP in structural terms every year until it is below 3% again. This obligation is called an "excessive deficit procedure".

France wants a smaller annual deficit reduction if a government makes reforms and invests under a medium-term plan of four years that would be negotiated with the European Commission.

"We are totally convinced that during the four years of the excessive deficit procedure it is essential to keep incentives to encourage investment and structural reforms by introducing flexibility that could be 0.2 points per year. That's the only thing keeping France and Germany from having an agreement." he said.

"This principle is an absolute red line," he added.

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German Finance Minister Christian Lindner and his French counterpart Bruno Lemaire attend a European Union finance ministers meeting in Brussels, Belgium December 6, 2022. REUTERS/Yves Herman/File Photo

The discussions of EU finance ministers on Thursday evening and Friday are the final stage of a reviewing the EU's fiscal rules, suspended since 2020 for the COVID-19 pandemic and the energy crisis.

The ministers want to adapt the framework to the post-pandemic reality of high public debt and public investment needed to fight climate change.

The changes are designed to give EU countries more time to reduce debt through tailor-made plans and create incentives for public investment even when government spending has to fall, while making the rules easier to follow.

Le Maire said France has already accepted Germany's demand to set the minimum annual average debt reduction for countries with high debt at 1% of GDP and to establish a 1.5% of GDP safety buffer below the 3% of GDP deficit ceiling to prevent unexpected events from pushing governments above the EU limit.

(Additional reporting by Leigh Thomas in Paris; Reporting by Jan Strupczewski; Editing by Christina Fincher)

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