European flags fly in front of the European Commission headquarters in Brussels, Belgium, September 20, 2023. REUTERS/Yves Herman/File Photo Acquire LICENSE RIGHTS
BRUSSELS, Dec 5 (Reuters) – European Union governments are becoming increasingly unlikely to reach an agreement on the EU's new fiscal rules this year, amid disagreements over the pace needed to consolidate public finances, they said Officer.
On Friday, EU finance ministers are due to discuss changes to the rules that underpin the value of the euro and will be closely watched by financial markets. The aim is to agree on a common position, a so-called general approach, which will then be negotiated with the European Parliament at the beginning of 2024.
“I don’t think a general approach is possible before the end of the year,” said a senior euro zone official involved in the talks.
“On many issues we are too far apart, and some have not even been discussed yet,” the official said, adding that given the need to prepare for the European summit on Ukraine next week and talks on the common EU budget, only there is still little time left.
“An agreement on Friday is highly unlikely,” said a second official close to the talks.
But officials said that even if there was no full agreement, discussions based on a new compromise proposal from the Spanish presidency on Thursday evening and Friday were likely to lead to a convergence of positions, dubbed a “landing zone.”
The rules have been suspended since 2020 but are due to come into force again from 2024. EU governments want to update them to reflect the new post-pandemic realities of higher public debt and the need for major investments to prevent climate change.
Officials said delaying a deal until early next year would not have a major impact on the euro zone's fiscal policy in 2024 because next year's draft budgets were drawn up on existing Commission recommendations.
However, that would leave less time for negotiations on the final form of the rules with the European Parliament, which is dissolved in April ahead of June elections.
“We are very close to an agreement. There are differences and a few red lines, but with good will this could be achieved in a few hours of serious negotiations,” said a third euro zone official close to the talks.
The rules, called the Stability and Growth Pact, limit budget deficits to 3% of GDP and debt to 60% and impose disciplinary measures on those who do not reduce surpluses quickly enough. Many European governments now far exceed the limits.
The European Commission initially suggested that any decline in debt over a four-year period should be acceptable. Germany insists on annual minimum amounts, so-called benchmarks, that would be the same for everyone, and calls for debt reduction of at least 1% per year.
Berlin also wants the new rules to state that governments must aim for budget deficits well below 3% to create a buffer for unexpected events. This would further restrict national governments’ scope for fiscal policy action.
EU ministers are also haggling over the balance of power between themselves and the European Commission and how to effectively enforce the rules. But the main dispute is over the numbers – how quickly the deficit and debt need to be reduced.
Reporting by Jan Strupczewski; Edited by Christina Fincher
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