debt deduction
After months of intense negotiation, a compromise proposal to reform fiscal rules backed by the Spanish presidency is beginning to circulate among the 27. The draft, circulated by the vice president’s team led by Nadia Calviño, centers on a framework where the Paris-Berlin axis would be a major reference point for discipline and flexibility. Early comments from key eurozone finance ministers indicate that Germany and its allies remain cautious, signaling that pivotal questions must still be resolved. Talks are expected to continue into the night and into Friday as ministers seek a political accord at this Ecofin session.
Calviño stressed that the meeting should be productive and warned that the evening could be lengthy. Ministers will move through this Ecofin with a working lunch that has no set closing time, aiming to use all available time to close gaps and advance a deal that has gradually taken shape after hours of protracted talks. While differences persist among member states, the tone remains hopeful that a constructive approach can bridge them. The vice chair of the commission, Valdis Dombrovskis, signaled similar expectations that an agreement could be reached today or tomorrow.
Italian commissioner Paolo Gentiloni, however, gave a more guarded forecast, placing success odds around 51 percent. He emphasized the need for stronger ambition to curb excessive deficits and warned that political and technical obstacles linger. Riikka Purra, a Finnish critic, urged rules to be tight yet workable, underscoring the demand for firmness without sacrificing implementability.
Calviño noted that criticism has come mainly from fiscally cautious members, with Germany pushing for more flexible arrangements, while France and Italy argue that the proposal from the Spanish presidency provides a balanced path. The plan relies on a single monitoring indicator—the spending path—and on rules that are easier to apply, more realistic, and aligned with the post pandemic economic reality. It also seeks to assure sustainability alongside the investments needed to support the coming years, according to the deputy prime minister.
the debt rule balance
The core balance depends on Berlin’s numeric demands to ensure that deficits and debt levels progress at acceptable rates. The proposed framework includes an average annual debt reduction target of 1 percent for countries with debt above 90 percent of GDP, a 0.5 percent target for those between 60 and 90 percent, and a commitment to establish a financial cushion. This cushion would be activated if a deficit shock occurs, and a 0.5 percent annual adjustment would apply to countries with deficits above the 3 percent ceiling and under the excessive deficit procedure.
Germany arrived in Brussels signaling readiness to reach an accord while acknowledging ongoing questions. There has been intense discussion in recent days and weeks, particularly with France, and both countries are said to have moved a long way toward agreement. Yet several issues remain unresolved, including the scope of the open files under the excessive deficit mechanism and the effort required from countries under surveillance.
France seeks more flexibility
France has introduced a new demand at the last minute, requesting two tenths of additional flexibility for countries still under the excessive open files. The proposal retains the idea of continuing the excessive deficit procedure as a safeguard, with a debt reduction path of 1 percentage point per year and a standby clause for a deficit of 1.5 percent. Berlin has signaled willingness to negotiate on these points, while insisting that flexibility be balanced with the need to push investment and reform to keep Europe competitive on the world stage.
France has demonstrated decisive moves to secure a credible set of rules. While France insists on resisting further concessions that could undermine the target, it asks fellow member states to accept a more limited scope for sanctions while maintaining momentum for investment. The aim is to preserve Europe’s leadership in innovation against the United States, ensuring that Europe remains on track to sustain growth and resilience without sacrificing long term stability.
Calviño and the EIB future
Beyond the fiscal framework, attention is turning to the renewal of the European Investment Bank presidency. Calviño is believed to be among the strongest candidates for the post, and observers expect an announcement at a working breakfast hosted by the Belgian finance minister. The EIB renewal is being framed as part of a broader strategy to align fiscal discipline with the bank’s role in financing growth and modernization across Europe.
Earlier in the week, the Eurogroup issued country-by-country recommendations for 2024 budget plans. Ministers urged member states to phase out significant energy support measures and to adopt a prudent, gradual fiscal stance as soon as possible, using fiscal space to reduce deficits. The overall tone is that careful, sustainable budgeting is essential for Europe to meet its investment needs and to keep public finances on a sound track for the future.