Austria digs in ahead of the EU’s deficit battle!

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Austria digs in ahead of the EU’s deficit battle!

Austria’s finance minister is readying for a fiscal fight — and on the lookout for allies.

The EU will soon relaunch contentious talks over reforming its complex rules for public spending, and more flexibility is “a high-risk gamble,” Gernot Blümel said in an interview over the phone from Vienna. “This hypothesis [assumes] that there will not be any difficult economic situations in the future” and “that’s just not the case.”

AUSTRIAN DEBT FEARS:

​​Enjoy the summer calm before the fiscal storm: Brussels is preparing to relaunch the bitter debate over overhauling the EU’s rules for public spending after September’s German election, and political maneuvering is well underway. One of the more vocal movers is Austria’s finance minister, Gernot Blümel, who spoke to Playbook on the phone ahead of his summer holiday in Tyrol about his search for allies in the upcoming battle. The European Commission first launched the debate early last year in a consultation. Then the pandemic hit, and Brussels put the debate — and its public spending rules — on hold.

At its most basic:

The so-called Stability and Growth Pact caps budget deficits to 3 percent of economic output and tries to limit public debt to 60 percent. Sounds simple. But those thresholds are intertwined with complicated measures that effectively allow capitals to bend the rules without being punished — France and Italy in particular. That’s triggered plenty of criticism among policymakers, EU officials and economists, who’ve questioned the SGP’s effectiveness. “I’m cynical about the rules,” Bruegel’s senior fellow, Nicolas Véron, said on the phone from the French countryside, playing down the chances of meaningful reform. “As long as countries like France don’t change their behavior, it can’t be enforced and therefore not credible.”

France, Italy and Spain are calling for changes that are less punishing for countries with high debt and waive public spending on green initiatives that boost growth to help fight climate change. It’s all about adapting the rules for Europe’s post-pandemic challenges, they argue, rather than returning to an austerity policy that proved so damaging after the 2008 financial crisis. Sounds logical to some.

But it’s setting alarm bells off in Vienna:

“It’s a big mistake,” said Blümel, who’s sent letters to mainly northern capitals to rally support for his alliance. “This hypothesis [assumes] that there will not be any difficult economic situations in the future” and “that’s just not the case.” The rules are flexible enough and introducing “artistical calculations” that exempt green investments into the mix aren’t feasible, the 39-year-old insisted. “In the end, it’s how the markets evaluate lending to you,” and if investors don’t think you can service your debt, “then you’re going to have a problem.”

Stricter, less bendy:

If you want to make changes to the SGP, then develop better incentives for governments to fulfill country-specific recommendations that the Commission presents to them, the Austrian argues. That includes “negative incentives,” he said — an apparent reference to Brussels’ ability to fine countries 0.2 percent of GDP for ignoring the rules (which hasn’t happened yet). When asked if that’s what he meant, Blümel responded: “I think the rules should be applied properly.”The EU’s fiscal watchdog has urged governments to agree on any changes to the SGP before they’re reintroduced in 2023. That might seem like a long way off, but political entrenching in the EU can produce deadlocks in Brussels that last years. We’ll see how deep countries have dug in by Autumn.

Source: Politico

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