EU rules on member states’ debt are “outdated” and must be rethought to reflect the costs of a pandemic, war and rising inflation, France’s finance minister has warned.
Bruno Le Maire said a “new economic model” was emerging in Europe as public spending increased and said any contrast between “thrifty” northern EU member states led by Germany and spendthrift southern countries was no longer matter.
“Is there a country in Europe, in the Eurozone, that has left its citizens to deal with inflation on their own? None,” Le Maire said in an interview. “This concept of ‘frugal states’ has been dead for a long time. The Netherlands is not particularly frugal. Germany is not particularly frugal. They spend as much as we do to protect their citizens from inflation.
The French minister’s push for new economic thinking in the EU — given the need for big investment in renewable energy to tackle climate change and more defense spending after Russia’s invasion of Ukraine — contrasts with the more conservative views of Christian Lindner, Germany’s finance minister .
Lindner said in May that the EU should become “harder, not softer” in reducing public debt.
Le Maire acknowledged that the EU still needs limits on government debt and member states’ annual deficits, a set of requirements known as the Stability and Growth Pact. But the rules — which were suspended during the pandemic and are supposed to limit the nation’s public debt to 60 percent of gross domestic product — “need to be rethought,” he said.
“The debt rule is out of date simply because you have a difference of more than a hundred percentage points between one country and another in the same currency union [the eurozone],” he said. What matters now, he added, is the trajectory of debt reduction.
The suspension of the Stability and Growth Pact was extended until the end of 2023 because of the war and the subsequent spike in inflation. Germany’s public debt, which stands at 69 percent of GDP, exceeds EU guidelines, while France’s has risen to 113 percent, Italy’s to 151 percent and Greece’s to 193 percent, according to EU statistics.
Investors are increasingly nervous about the EU’s economic stability. Recent increases in spreads between countries’ borrowing costs have fueled fears of a new eurozone debt crisis, with the European Central Bank agreeing to propose new policies to counter any unwarranted sell-off in a country’s bonds.
Le Maire defended the EU’s goal of keeping the budget deficit below 3 percent of GDP. He said plans for France called for public debt to fall from 2026 onwards and the deficit to be reduced to less than 3 percent in 2027, compared with this year’s forecast of a deficit of 5 percent.
Le Maire’s comments come as France seeks to bounce back from a period of heavy government spending aimed at helping consumers and businesses through Covid-19 and inflation fueled by the war in Ukraine.
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The finance minister, who has been a key member of Macron’s government since 2017 and heads a “super ministry” of finance and industry, said the upcoming bill to blunt the impact of inflation would include more “targeted and temporary measures”, after €26 billion wider spending programmes, including fuel subsidies and retail electricity and gas price caps.
Although Macron, who is starting his second term, has lost control of parliament, Le Maire has pledged to continue pro-business reforms and tax cuts that he says are aimed at achieving full employment, something that has eluded France for more than 50 years. years.
“Achieving full employment is the key to restoring France’s public finances.” Getting there will require continued reforms to the labor market, unemployment benefits and training, as the president has promised,” he said. Changing the expensive pension system to raise the retirement age remains a priority, he added.
The government will have to forge compromises on every law with opposition MPs.
“Faced with this new political situation, we must stand firm and remain calm,” Le Maire said. “There are 164 MPs in parliament who are not far-left or far-right, who we are fully prepared to work with and who will allow us to reach compromises.”
The far-left is pressuring the government to adopt a windfall tax – similar to those introduced in the UK and Spain – for energy companies that are prospering from the impact of the war in Ukraine and rising oil and gas prices.
Asked if he would introduce such a tax, Le Maire did not rule it out, but said he wanted to wait until the end of the year to assess whether it was necessary. “The burden of inflation must be fairly shared between the state and business,” he said, adding that he had already persuaded companies including Total and container shipping group CMA CGM to take voluntary steps to dull the pain of inflation.
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