The Slovenia Times

Calls for flexibility as EU's economic governance discussed

European Commissioner for Economy Paolo Gentiloni addresses a hybrid event discussing reform of the EU's economic governance. Photo: Anže Malovrh/STA

There were calls for flexibility but also for a clear set of rules as the Finance Ministry and the European Commission Representation in Slovenia hosted a high-profile event to discuss efforts for the EU's new economic governance framework at Brdo pri Kranju on 9 March.

The event, attended by European Commissioner for Economy Paolo Gentiloni and Eurogroup President Paschal Donohoe, among other high-ranking officials, heard EU member states might reach an agreement on the economic governance at the summit next week. The European Commission could follow up with concrete legislative proposals in April.

Johanna Lybeck Lilja, a state secretary at the Swedish Finance Ministry, said views differed, but the Swedish presidency believed negotiations to be constructive and that position are coming closer together.

This involves, above all, general questions of combining fiscal policy with reforms and investments, the medium-term outlook in public finance planning, as well as the preservation of the 3% of GDP cap on public finance deficit and the 60% of GDP cap on public debt laid down in the stability and growth pact.

Donohoe said member states must be heard, but at the same time trust of the financial markets must be preserved.

Slovenia's Prime Minister Robert Golob called for a flexible fiscal rule. "We understand the need to re-introduce the fiscal rule, but it must allow sufficient flexibility to enable us to respond to changes." A definition of flexible must also be agreed.

He believes flexibility must be the guideline for all changes; not just the fiscal rule, but also state aid, energy and market restructuring. "This is because the pace of changes is relentless and we're slipping from one crisis to the next. We need flexibility to be able to respond."

Slovenia's decision to suspend the fiscal rule during the Covid-19 pandemic and the energy crisis has helped the country enormously, said Golob. Slovenia intends to reintroduce the fiscal rule next year.

Gentiloni believes Golob's call for flexibility is sensible. The ability to adapt public finance policy and the increasingly tougher monetary policy to the changing circumstances requires a flexible attitude. However, at the same time clear rules are needed, he said.

Public debt and inflation are very high, and while the economic situation is better than predicted, the situation is still far from good, Gentiloni said. If the EU is serious about the green transition and boosting competitiveness and innovation, it needs investments, both private and public, he said.

The fiscal rule must be adapted to represent a better balance between sustainability of public finance, investments and growth. It must be more effective, subjected to better oversight and it needs better implementation. It must also be more transparent and simple.

An agreement has formed on a proposal about gradual adaptation to public finance consolidation if a state is implementing reforms, and about considering specific circumstances of individual countries and about a medium-term aspect and focus on quality of public finance.

The commissioner said the EU did not have a lot of time to implement this reform. Discussions in individual states have shown the willingness for consensus, but some issues remain open.

Slovenia's Finance Minister Klemen Boštjančič said that simply reverting back to the old rules would be unproductive. He believes member states had learnt from experience, when many had cut investments in the name of austerity and at the expense of growth.

He believes the European Commission's proposals are a step in the right direction, but wonders whether the system would allow big investments. The need for investment is very high and the new system will have to recognise this, as well as an investment gap between member states.

His Portuguese counterpart Fernando Madina said that countries in different positions should be treated differently, but at the same time all those in similar positions should be treated equally.

He warned that the changes were being made at a very demanding time and noted that the political map had changed as well, showing no simple division between the austere and spendthrift countries.

Pierre Gramegna, the managing director of the European Stability System, said the flexibility of new rules will function only within the concept of sustainability. The EU needs credible rules, which will also be welcomed by the financial markets, as well as equal and fair treatment of all member states.


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