MNI INTERVIEW: Easing EU Fiscal Rules Now Dangerous-EFB Member

The European Commission will continue to oppose Italian-led calls for a suspension of the General Escape Clause from the EU’s fiscal rules so long as growth remains even marginally positive, European Fiscal Board member Eckhard Janeba told MNI, adding that to act otherwise would endanger the bloc’s fiscal government framework. 

“If we respond to crises like this already then the fiscal rules can just be thrown out of the window,” Janeba said in an interview, noting that a proviso in the rules specifies that implementation of the GEC should not pose a risk to fiscal sustainability over the medium run.

“Certainly, there is an issue with fiscal sustainability, in particular given higher defence spending and the expiration of the National Escape Clauses for defence spending in 2028.” 

Some EU states – among them France – did not even apply for the national escape clause for increased defence spending – apparently because of the already dire state of their public finances, he added. (See MNI: Further EU Measures Depend On Crisis Duration - Officials)

Turning to the energy support measures announced by Germany’s governing coalition on Monday in response to the Iran conflict’s impact on oil and gas prices, Janeba lamented that they are “not very targeted,” despite the “temporary and targeted” advice from the Commission and the European Central Bank. 

“By lowering taxes on energy, they tend to increase demand if they are passed through to consumers. That is exactly what you don’t want to do in a situation with a negative supply shock,” Janeba said.

ECONOMICALLY PROBLEMATIC

Such responses to the crisis might be “politically understandable but are economically problematic,” he said, adding that it is “not out of the question” that Germany could fall into an Excessive Deficit Procedure this year, depending on reform and consolidation measures Berlin has promised for the coming months. (See MNI INTERVIEW: Germany Still Risks Excessive Deficit Procedure)

“Before the crisis Germany’s budget deficit would have been slightly over 3% of GDP after taking the NEC into account - not by very much – but now, with the crisis, and with a negative impact on growth and additional measures, that could very well push the deficit higher.”

The German government has promised the reform and consolidation measures before the summer break. These will be key to whether the country can get back on a higher growth path and tackle structural problems such as ageing, according to Janeba. 

The European Fiscal Board will present its annual report on the EU’s fiscal stance in June, the conclusions of which will feed into the Commission’s assessment of EU states’ 2027 fiscal plans.