Germany still wants common benchmarks in new EU debt rules-draft

The German draft said that more time to cut debt -- the four years or more proposed by the Commission as opposed to annual cuts now -- should be coupled with more ambitious targets. "The Commission's proposals envisage a move towards a greater medium-term focus in budgetary policymaking.

More time for debt reduction in new EU fiscal rules would have some advantages but common debt cutting benchmarks are still needed, a draft opinion piece by the German finance minister said. Fiscal rules underpin the value of the euro by preventing excessive government borrowing, but a surge in public debt caused by the pandemic and the war in Ukraine has rendered them obsolete and reform is now being discussed.

Because debt levels in the EU range from 18% of GDP in Estonia to more than 170% in Greece, the European Commission proposed replacing existing debt cutting rules with individual debt reduction paths set over four years with no common numerical benchmarks. Germany fears this would give too much discretionary power to the Commission to negotiate the debt paths and that the longer time horizon will mean events along the way will invalidate the agreed goals.

"Quantitative criteria that apply to all Member States help by formulating clear minimum requirements that allow consolidation and support growth," the draft article by German Finance Minister Christian Lindner, seen by Reuters, said. "After all, fiscal policy is about quantifying political priorities," he wrote.

The draft article, the final version of which is still being negotiated with several other governments who are to co-sign it, is to be published as European Union finance ministers gather in Luxembourg to discuss the reform of the rules on Friday. A German government source said numerical benchmarks and safeguards were a "red line" for Berlin.

"That is our core demand and will not be dropped," the official said. France, Italy and Spain believe numerical benchmarks for all would defeat the whole point of the reform. The German draft said that more time to cut debt -- the four years or more proposed by the Commission as opposed to annual cuts now -- should be coupled with more ambitious targets.

"The Commission's proposals envisage a move towards a greater medium-term focus in budgetary policymaking. This has its advantages, notably because fiscal risks extend beyond the short term and those cannot be ignored," the draft said. "However, a stronger focus on the medium term should allow for more gradual, but ambitious adjustments," the draft said.