Germany’s Lindner wants stricter enforcement of EU rules on budget deficits

German Finance Minister Christian Lindner, a self-described budget hawk, is offering a trade-off in the ongoing EU fiscal rules debate: Tighter enforcement of spending limits, in exchange of a degree of flexibility on the pace of debt reduction.

In an interview published Thursday in Handelsblatt, he delivered Berlin’s opening salvo. “I advocate for more binding rules, but in a realistic way,” he said. “Almost like Halloween: trick-or-treating.”

Lindner ruled out changing the EU’s 3 percent cap on annual deficit and its 60 percent debt-to-GDP threshold — a move that would have been difficult in any case, as it would require unanimity among EU capitals.

Instead, he called on member states to make the so-called medium term budgetary objectives under the EU’s fiscal rules binding. These are country-specific budgetary targets that countries should aim for by limiting their budget deficit to 0.5 percent per year.

If a country doesn’t do that, the Commission could issue a warning — dubbed a “significant deviation procedure” — before launching the full-blown sanction of an “excessive deficit procedure,” which could eventually levy fines on countries in breach.

In practice, these rules are seldom enforced — something Lindner wants to change.

“So far … these have been decisions at the discretion of the EU Commission. I’m afraid that makes them irrelevant,” he argued. “My proposal is therefore aimed at making these medium-term budgetary targets binding.”

If a country falls short of those objectives, “its financial plan would not be accepted,” Lindner said.

In exchange, Lindner proposed waiving a rule requiring countries to reduce their excess debt by 5 percent per year — a requirement that “has been overtaken by reality” due to the piles of debt that governments took on during the pandemic, he acknowledged.

Lindner, a liberal, noted that the other parties in Germany’s governing coalition — the Social Democrats and the Greens — have “agreed on the principles” of his proposals.

The European Commission has said it will present proposals after the summer on how it intends to reform the rules.

Source: Politico