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Germany has stumbled on the stricter fiscal rules it championed for EU member states, as Brussels called out some of the bloc’s fiscal hawks for struggling to meet agreed spending limits.
While draft budgets will in aggregate reduce public spending across the Eurozone by 0.25 per cent of GDP in 2025, the European Commission said on Tuesday that the fiscal discipline was largely shown by high-debt countries.
Meanwhile the Netherlands, Germany and Finland — so-called “fugal” member states — fell out of line with required spending limits, even though they led calls for the EU to adopt even stricter public spending rules.
“Yes there are some rigid rules, but honestly I’m not the one that wanted them,” said outgoing EU economy commissioner Paolo Gentiloni on Tuesday.
“I’m not pointing the finger at anyone,” he added. “But someone asked for these strict rules. Now we have these rules and the commission is asked to implement them.”
The revised EU fiscal regime, which was agreed earlier this year after years of inflated spending following the pandemic and energy crisis, aims to keep annual deficits within a 3 per cent threshold and reduce debt to 60 per cent of total output.
In its first assessment of how the rules are being applied, the commission today gave good marks to the draft 2025 budgets of eight euro area countries including relatively high-debt member states such as Greece, Italy and France.
But it negatively assessed the Netherlands’ draft budget for planning a higher net expenditure than required, and said that Germany, Finland, Estonia and Ireland were “not fully in line” with spending ceilings, while Lithuania “risked” not being in line with them.
Germany, the Netherlands and Finland were among the countries that pushed hard to include safeguards in the new rules to constrain spendthrift countries, but now found them hard to meet.
“The current government takes a first step to reduce spending structurally. Further steps [are] needed by future governments,” Dutch finance minister Eelco Heinen told the Financial Times.
German officials have noted in recent weeks that the EU rules are now even tougher than Berlin’s own restrictions on debt. Germany has a “debt brake” enshrined in its constitution that caps new borrowing at 0.35 per cent of GDP, adjusted for the economic cycle.
Former finance minister Christian Lindner, who was sacked by Chancellor Olaf Scholz this month, had earlier argued that even if the debt brake was loosened, the government would still face strict spending limits under the EU’s fiscal rules.
“European law might force us to make more savings,” he said, adding: “We may have to save because of the European rules, not because of the debt brake.”
While the draft German budget is obsolete and likely to be supplanted by a new one, following elections in February next year, any incoming government would likely face the same issue.
“It’s coming back to haunt us,” a government official said.
