The President of the European Central Bank (ECB) Christine Lagarde said on Monday that she hoped for an agreement between the States of the European Union on the reform of budgetary rules before the end of the year, on the menu of discussions this week between the Ministers of Finance .
“This test should, I hope, be successfully passed before the end of December,” said the French leader on Monday, speaking in Paris before the Academy of Moral and Political Sciences.
“Failing to pass this test, that is to say failing to find ways of this budgetary governance, we will fall back on the old Stability and Growth Pact,” continued Ms. Lagarde who spoke from the French capital but by videoconference, after contracting Covid-19 during the weekend.
Suspended for two years, the rules of the Stability Pact consist of states theoretically limiting the public administration deficit to 3% of the national gross domestic product (GDP) and the debt to 60% of GDP. In practice, it did not prevent the explosion of debt, while slowing investment and growth after the financial crisis of 2008.
EU member countries therefore agree that the old rules of the Pact, which date back to the end of the 1990s, are obsolete, too complex and ineffective.
“Everyone agrees” that the old Stability Pact “is not appropriate to current circumstances and that it does not meet the needs of States,” Christine Lagarde insisted on Monday.
The objective for the 27 is to agree on rules more adapted to the particular situation of each country, to set budgetary trajectories that are both more realistic and better respected in order to avoid a return to the old rules from 2024.
It is also about finding the right balance between spending reduction and room for maneuver for priority investments in the green transition and rearmament against the backdrop of the war in Ukraine.
This is the meaning of the proposal put on the table in April by the European Commission and on which European Finance Ministers must try this week to find an agreement.
This proposal takes up the emblematic thresholds of 3% and 60% of GDP. But, to the Member States which exceed them, it grants more room for maneuver to get back on track.