Sven Giegold

Stepping on the brakes no longer: German government offers way forward on fiscal rules reform

Just before the summer break, the German traffic light coalition of Social democrats, Liberals and Greens agreed on a common position on reforming the EU fiscal rules. This means that Germany will no longer be stepping on the brakes in the discussions next fall, but will make a constructive contribution to improving the rules. In December, we had already agreed on the basic principles for reform in the coalition agreement – the German government has now spelled out these principles in a first, promising step.

A functioning economic and monetary union needs an effective set of rules for the fiscal policies of its member states. However, these rules must also make economic sense and be politically enforceable. The rules in their current form do not deliver on this objective. In fact, the EU Commission has not consistently enforced the existing rules for many years, developing more and more new exceptions over time. That is why we need a further development of the existing rules to make room for investment in the socio-ecological transformation of our economy and at the same time ensure debt sustainability throughout the Union. In the federal government, we now agree that such further development is needed and that the rules cannot remain as they are.

We have set out the principles for this further development in a joint paper, which you can download here. Of course, this paper is a compromise. It is no secret that there are differing views on this topic within the coalition. It is all the more important that we were able to agree on a number of improvements to the rules:

– The economically absurd 1/20th rule for reducing debt levels is to become history. Instead, compliance with the preventive arm of the Stability and Growth Pact is to suffice for compliance with the debt rule. This will prevent excessive, unrealistic debt reduction requirements for member states with particularly high debt levels.

– We want to enable more investment, precisely in order to contribute to the transformation towards climate neutrality. That is why the German government will advocate to expand the application of the investment clause in the fiscal rules; the paper makes concrete proposals to this end.

– We want to simplify the preventive arm and make it more transparent. With a stronger focus on the expenditure benchmark, we want to move away from the very strong dependence of the rules on the structural budget deficit. This is a good step in the right direction, even if we could have imagined even more decisive steps in this area.

– The new rules have to be fully enforced by the Commission.

In my view, we have thus succeeded in reaching a good compromise that will enable us to press ahead with the further development of the rules together with our partners. There is now a chance that the EU will finally get a set of rules which are economically up to the task.

And with this good news, I wish you a relaxing summer break!

With Green European greetings from Berlin,

Sven Giegold

Category: BMWK

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