Heated debates on reform of budgetary rules
But also — Poland, Asylum, AI, Eurozone in recession, Transparency
Hi! This is Tuesday, 13 June 2023, and here’s the EU news you need this week. Feel free to share this newsletter with friends and colleagues, and follow us on Twitter and Linkedin.
The Briefing
Since the European Commission's proposal to reform the Stability and Growth Pact (SGP) on 26 April, debate has intensified over the future of the EU's budgetary rules. Suspended since the Covid crisis, these rules are supposed to reapply from January 2024. However, Member States seem far from reaching an agreement — the same for the Parliament.
REMINDER • The Stability and Growth Pact — the 60% public debt and 3% deficit ratio rule — was temporarily set aside in the wake of Covid-19, which caused the explosion of public debt in the EU. In 2020, the Pact's "general derogation clause" made it possible to lift these obligations in order to deal with the health crisis and avoid subjecting a Member State to the exhausting excessive deficit procedure.
Due to the war in Ukraine and current economic hardships, the opt-out clause has been extended and is now expected to run until the end of 2024, after which the Commission hopes to see the birth of a revamped SGP.
REFORM • On 26 April, after months of discussions between the finance ministers of the Member States and the European executive, the Commission presented its plan to reform the budgetary rules.
With this reform, the Commission wants to move towards more flexible rules tailored to each country, moving away from the budgetary orthodoxy that has characterised its position on the subject until now.
Member States would thus have greater latitude over the pace at which they have to reduce their debt levels to below 60% of GDP and achieve annual deficits of less than 3% of GDP.
In practical terms, reference budgetary adjustment paths proposed every 4 years by the Commission, and then broken down on a case-by-case basis into national plans. These national plans would be negotiated directly with the Commission on a bilateral basis.
A MATTER OF TASTE • However, this proposal is not to the taste of all the Member States, particularly Germany, which has been highly critical of the Commission.
Among other things, Berlin fears that more flexible rules would be detrimental to reducing public debt within the EU. Germany is also wary of the Commission's role in negotiating debt reduction trajectories.
"A single monetary union also needs single fiscal rules", said German Finance Minister Christian Lindner last November.
Taking these criticisms into account, the Commission added several safeguards to its proposal, in particular an obligation for countries with a deficit in excess of 3% of GDP to reduce their spending by 0.5% of GDP every year.
GERMANY • The Council and Parliament must now agree on their respective positions prior to negotiations.
But according to Christian Lindner, there is still a long way to go before Member States find an agreement. "There is still no landing zone — a solution that convinces everyone", he told the FT.
Speaking to the FT, the German Finance Minister also stressed that the rigidity on the fiscal issue that characterised Angela Merkel's era had not disappeared with her departure.
"A lot of people thought that just because Germany now had a social democratic chancellor and the Greens were in government, it would give up its commitment to stable public finances (...) But that’s not the case", he explained.
Germany wants an annual reduction in the debt/GDP ratio of 1 percentage point for highly indebted countries and 0.5 percentage points for medium-indebted countries, which is opposed by many member states and economists.
Christian Lindner also told the FT that in his view Germany had already made enough concessions, which seems to mean that the German executive is not ready to give up. He also stressed that many countries were behind him. However, some believe that without Germany, an agreement could already have been reached.
Criticism of the Commission's proposal has also come from other Member States such as Italy and France, which consider that the automatic obligation to reduce deficits and debt is counterproductive.
PARLIAMENT • Debates are also intensifying in the European Parliament. On 7 June, four MEPs from the Renew group co-wrote an opinion piece setting out the group's position on the reform.
Published in Euractiv, the MEPs — Stéphane Séjourné, Stéphanie Yon-Courtin, Eva-Maria Popcheva and Caroline Nagtegaal — their piece calls a greater role of Parliament in European budgetary governance and for constant dialogue between institutions.
Their position is based on three pillars: responsibility, flexibility and clarity. With regard to flexibility, they stress that the budgetary rules must allow Member States to make the necessary investments in the areas of energy transition, digital technology and defence.
They also call on the other political groups not to avoid debate on this key issue in the run-up to the 2024 European elections.
On the one hand, they argue that "social Democrats might be ill-at-ease to reveal the fact that their ideological grand-standing does not even represent the policies of their own national leaders".
On the other hand, they stress that "the European People’s Party’s reputation of sound economic politics won’t pass the test of a close evaluation of their current flag-bearers.”
“Understandable yet irresponsible," they conclude.
WHAT NEXT? • On the part of both the Council and the Parliament, the debates are still far from over. The ability of the Spanish Presidency of the Council of the EU to create a favourable climate for an agreement between Member States to emerge before the end of the year is not guaranteed — not least because of the political uncertainty in Spain.
In Case You Missed It
POLAND • And another! On 8 June the European Commission launched an infringement procedure against Poland. The EU’s executive branch is thus putting Poland on notice for violating EU law. At issue is a Polish law that establishes a "committee" appointed by the lower house of Parliament — where the PiS has the majority — to examine Russia's influence on internal security, which came into force at the end of May.
The committee in question was given the power to prohibit public officials from holding any public office if they are found to have acted under Russian influence between 2007 and 2022 — with “acting” and “foreign influence” being very vaguely defined. The Commission considers that this law violates many fundamental principles protected by the European Treaties.
Poland has 21 days to reply to the letter of formal notice. If the Polish response is not satisfactory, the Commission will send a reasoned opinion, as a prelude to a new political and legal battle between Brussels and Warsaw.
ASYLUM • The Commission and EU interior ministers have reached a political agreement on the new pact on migration and asylum. This agreement represents a major step forward in a complicated and divisive issue.
The bone of contention is both logistical and financial. Italy, Greece and Malta bear most of the costs associated with the arrival of migrants on their shores, even when they only transit through them. And when they are denied asylum in another EU Member State, the country where they first arrived must take them back.
Under the agreement reached on 9 June, frontline EU member states would be obliged to implement stricter asylum rules to prevent migrants unlikely to have the right to stay from arriving at their borders.
The agreement also provides for an overhaul of the Dublin Regulation. Member States that are not in the "front line" will either have to accept a quota of migrants arriving each year in a frontline country or pay a European fund 20,000 euros per "rejected" migrant — above a certain quota only.
We are far from seeing the light at the end of the tunnel — Parliament and the Council will have to reconcile their positions, which is no small feat.
AI • The French minister for digital , Jean-Noël Barrot, has expressed concern about the European Parliament's position on the European legislation on artificial intelligence (AI Act), stating that it risks hindering the development of domestic alternatives to GPT.
In an interview with Politico, he cited Google's decision not to launch its Bard chatbot in the EU as a warning that Europe could fall into the global AI race. His remarks follow those of President Emmanuel Macron, who recently called for "finding a balance between innovation and regulation".
The Parliament and the Council have finalised their draft AI legislation and now need to negotiate an agreement on a joint text. The European Parliament's position calls for greater transparency and respect for human rights. Jean-Noël Barrot says he prefers to address AI-related issues, such as privacy, in multilateral organisations such as the G7, which has set up a working group on generative AI.
URSULA IN TUNISIA • To continue the immigration sequence, Ursula von der Leyen visited Tunisia on 11 June, accompanied by Mark Rutte and Giorgia Meloni. EU member states are putting on the table a package of one billion euros in financial aid — mostly loans — to Tunisia, to help economic development and control the flow of migrants to European borders. The EU would provide €100 million to help manage Tunisia's borders.
EUROZONE • According to the latest Eurostat data, the eurozone GDP contracted by 0.1% in the first quarter of 2023. Worse, Eurostat is also revising downwards its growth figure for the fourth quarter of 2022, to -0.1% against 0% previously. The euro area is therefore in a technical recession.
The eurozone is thus following in the footsteps of Germany, which has also been in technical recession since this quarter. In this context, the ECB’s Governing Council is meeting on 15th June and is expected to endorse another further increase in interest rates.
ETHICS • On 8 June, the European Commission adopted a proposal to create an EU ethics body. The organisation will ensure that unified standards are respected for all the European institutions in terms of gifts, meetings with interest representatives, ancillary or external activities, or the activities carried out by former members of the institutions.
This proposal was announced at the beginning of Ursula von der Leyen's mandate in 2019, but came shortly after the Qatargate scandal, which saw a vice-president of the European Parliament imprisoned in a corruption case. The Greek MEP has however obtained permission from Belgian authorities to go to the Parliament's plenary session this week in Strasbourg, reports Politico.
What we’ve been reading
Oscar Guinea, an economist at the ECIPE, outlines ideas to breathe new life into the Mercorsur-EU trade agreement.
In a column for the Institut Montaigne, François Godement lays out the practical challenges that hamper the work of the Trade and Technology Council in its mission to find new common grounds between the US and the EU.
This week’s newsletter is brought to you by Clément Albaret, Augustin Bourleaud et Maxence de La Rochère. See you next Monday!