Tax rules reform returns to the agenda this Thursday as EU economy and finance ministers meet
The reform of tax rules comes back to the table alongside Spain’s new compromise proposal, with Madrid holding the rotating EU presidency this term. The aim is to overcome months of deadlock caused by disagreements among member capitals, notably Paris and Berlin. To push the talks forward, Spain’s vice president and economy minister, Nadia Calviño, invited her counterparts to a negotiating dinner that would begin after the Eurogroup meeting and could stretch into Friday. The menu includes a plan for a minimum annual adjustment for all countries that carry debt above 60 percent of GDP and maintain fiscal buffers even if the public deficit does not exceed 3 percent.
According to a document obtained by Grupo Prensa Ibérica’s El Periódico de Catalunya, the Spanish presidency intends for the dinner to last as long as necessary to reach a political agreement on the outstanding issues. European diplomatic sources note that Madrid and Brussels have kept talks focused on Plan A and the possibility of a near-term deal. They say the parties are prepared to stay up all night if needed, highlighting progress achieved in recent months and signaling optimism about an agreement possibly being signed between Thursday and Friday, subject to the European Parliament’s approval (as reported by EU insiders).
Less debt and deficit
The new document prepared by Calviño’s team narrows the gap with Germany’s demands and lays out specific numeric safeguards for debt and the deficit. The goal is to ensure that countries already in compliance with the stability criteria maintain the agreed pathways to harmonization. For example, the latest debt proposal suggests that the most indebted member states, with debt levels above 90 percent of GDP, should reduce their debt gradually during the adjustment period. The target is a yearly average reduction of about 1 percent of GDP, or 0.5 percent if they exceed the stated threshold, with different requirements for countries whose debt lies between 60 and 90 percent of GDP.
The latest deflation-protection measures also introduce a previously unforeseen threshold: a fiscal buffer equal to 1.5 percent of GDP. Even if a country is not under a sanctions procedure, it would still be expected to tighten its fiscal stance to preserve this buffer, even when deficits stay below the 3 percent of GDP cap. The Commission’s technical track record will be relied upon to ensure the fiscal framework remains in force until the member state reaches a deficit margin that allows a flexible cushion of 1.5 percent relative to the 3 percent reference. Spain argues this margin would safeguard room for public investment and reform. To reach it, the annual adjustment to the primary structural deficit would need to range roughly from 0.3 to 0.4 percent, or 0.2 to 0.25 percent depending on the agreed adjustment timeline.
The proposal also preserves the minimum annual budget adjustment of 0.5 percent of GDP for countries with a deficit above 3 percent, but it, at the same time, contemplates lifting the deficit sanction cap of 0.5 percent of expected GDP upon the request of countries such as the Netherlands, Austria, or Germany. Diplomatic sources describe the sanction ceiling as a signal that is not always practical or effective in its current form, even as the text leans toward Berlin on many points. Nevertheless, many areas remain to be negotiated among the Twenty-Seven, including how investments and reforms are treated while extending the fiscal trajectory from four to seven years. The central idea is that debt level remains a key aggravating factor in setting deadlines and targets.
Calviño to EIB
Beyond reaching consensus on fiscal rules, a separate hot topic on Friday is the upcoming election of the President of the European Investment Bank (EIB), which will replace Germany’s Werner Hoyer as of January 1, 2024. Diplomatic sources indicate that Calviño’s candidacy is fully considered, with the Belgian Finance Minister also mentioned as a potential president-in-waiting.
According to the same insiders, a silence procedure at the end of last week indicated broad support for Calviño and recommended that other delegations withdraw their current candidates. The Belgian conclusion is that the Spaniard has enough votes, a sentiment that could be confirmed during breakfast on Friday by van Peteghem.