France-Germany agreement on a new Stability Pact


AGI – Listening to France and Germany, one would take for granted the agreement on a new Stability and Growth Pact at the extraordinary Ecofin meeting via video conference (from 16:00 until the 27th reach an agreement or resign themselves to not having one this time).

French Economy Minister Bruno Le Maire and German Finance Minister Christian Lindner were expected to work over dinner in Paris (definitely not via video conference) to hammer out the final details of the deal. And they wanted to show all their optimism about the result, in a press point convened before sitting down to the table. “I am very happy to inform you that we are close to a 100% agreement between France and Germany,” and “we will have that agreement tonight,” Le Maire said in a press statement with Lindner.

“We have worked a lot with our Italian friends, especially with Minister Giancarlo Giorgetti. We are on the same line with Italy. And it is excellent news that France, Germany and Italy have come together,” he added. Lindner himself said he was optimistic. “We have already had a conversation with our Italian colleague today, and therefore I am convinced that a political agreement can indeed be reached at the extraordinary Ecofin meeting,” he confirmed.

“In the last two years, in the last months and even more intensively in the last weeks, we have spoken. We have brought the German and French positions together. We believe that the Franco-German agreement will allow others to say yes, we agree with this proposal,” repeated the leader of the German liberals, who leads a modest group in Brussels.“The big change came from that the safety thresholds we need to reduce the deficit and debt are now mutually agreed and that we have found a way that the legal text should not touch the corrective part of the Stability Pact, namely the excessive deficit procedures, but for some cases there are certain options that need to be used. And that could be a common landing zone,” he explained.

Translated: temporary flexibility is confirmed for 2025-2027 for countries in the process to factor in debt interest costs in the deficit calculation. This will not be an absolute value for everyone, but will be agreed on a case-by-case basis with the European Commission as part of the assessment of debt recovery plans. Investments spent on defense will also be taken into account when initiating proceedings for failure to fulfill an obligation. No golden rule for green or innovation.

The part concerning the so-called “corrective hand” is now defined for the German minister. We need to work on the “preventive part”, i.e. the deficit thresholds that must guarantee that the country does not exceed 3%. “There is a possibility that a political agreement will be reached. Only two elements remain to be defined: the speed of convergence with the deficit threshold and the maximum deviation from expenditure threshold“, explained a senior European Union official working to prepare the meeting.

So far, the deficit target for those with a debt-to-GDP ratio above 90% will be tighter and will have to be around 1.5%, while those with lower debt (but above 60%) will be able to increase their debt to 2%. %. The average annual debt reduction of the most indebted countries will have to be equal to one point of GDP, while countries with a debt-to-GDP ratio below 90% could be limited to half a point.

“Some technical issues need to be clarified: we still have to agree on some numbers, but I am extremely confident that we will be able to achieve this goal tonight and that we will bring many more with us,” assured Lindner, who reiterates, however, that Berlin will not provide no discounts.

Germany would not accept rules that are not strict, in the sense that they are credible, sufficient and effective to lead to lower debt levels and a reliable path to reducing deficits, and I think what we get is exactly this landing zone: let’s allow investment, keep the fiscal space for structural reforms , but compared to the old rules, the new rules will reduce those debt levels and reduce deficits. The old rules are strict on paper, but not in application,” he emphasized.

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