Fiscal reform + China as rival + Lessons from Qatargate

Fiscal reform: How the Commission wants to encourage governments to save money

The EU Commission is proposing a departure from the current budget rules for EU states. In the future, the Brussels authority wants to give countries national reference paths for budget restructuring. These are to be the basis for negotiations with governments on their medium-term fiscal and reform plans. The proposal will be presented today, the draft was available to our colleagues from “Contexte”.

The Commission should consider some criteria in the reference paths:

• the level of debt should be lower after four years than at the beginning of the period;
• net primary expenditure (excluding interest charges, one-off expenditure and cyclical expenditure for unemployment) is expected to increase at a lower rate than the economy’s potential growth;
• the consolidation should not be pushed back within the period (no backloading);
• if the expected budget deficit is more than three percent of GDP, expenditure should be reduced by at least 0.5 percent annually – probably without initiating an excessive deficit procedure.

‘Substantial concessions’ to Berlin

The Commission is thus addressing the German government’s concerns to some extent. The traffic light coalition is calling for fixed criteria for national spending paths and fiscal plans to limit the Commission’s discretionary powers. For example, primary spending by highly indebted countries should be at least one percent below the potential growth of their economies, the German government wrote in a position paper in early April. In addition, these countries should have to reduce their debt levels by at least one percentage point per year.