European Parliament divided in debate over new debt rules

In a parliamentary debate on the European Commission’s proposal for new fiscal rules, EU lawmakers offered views diverging widely along both ideological and national lines, putting the Parliament’s ability to make its voice heard in the upcoming negotiations in doubt.

The European Commission proposed the legislative changes in late April and aims to finish the deliberations before the end of the year so that the new rules could come into effect at the beginning of 2024. This unusually tight deadline puts a lot of pressure on the co-legislators, the finance ministers of member states and the EU Parliament to come to an agreement.

In its proposal, the Commission suggested moving towards more individual debt reduction paths for EU member states to allow for growth-enhancing investments even if they don’t reduce public deficits in the short term. While this represents a move towards less austerity, the Commission also proposed some “safeguard provisions” to account for German fears that the rules might not lead to an effective reduction of debt levels.

Ideological lines of conflict

In the European Parliament, the proposal was attacked from all possible sides on Tuesday (9 May).

For the centre-right European People’s Party (EPP), the proposal is not strict enough. The German MEP Markus Ferber offered an entirely different analysis of why the current rules were a problem than the Commission and a majority of economists, saying that the problem was that they did not lead to a fast enough budget consolidation and that they were applied in too flexible a manner.

“The three solutions provided by the Commission now mean even more time, even more flexibility, and even weaker sanctions. With all due respect, this is not the right solution,” he said.

The centre-left Socialists and Democrats (S&D), meanwhile, said that the focus was too strong on budget consolidation, putting social spending in danger.

“Secondly, we are missing another opportunity to create a permanent European investment capacity,” Social Democrat MEP Pedro Marques said. “Such a capacity would help us deliver strategic reforms at the European level and stabilise our economies through the economic cycles.”

At the same time, the head of the green group Phillippe Lamberts complained about the “austerity dogma” that had reigned Europe for the past 25 years. While the Commission wants to keep the deficit limit of maximum 3% per GDP, Lamberts rejected it for it had “no scientific basis whatsoever”.

“What matters is not so much the level of the deficit, but the public and economic utility that it finances,” he said. Moreover, he argued that the rules had to be adapted to allow for more climate investments.

Alternatives to debt

While debt financing is not the only way by which countries can achieve policy priorities, it might be the most efficient one.

National lines of conflict

However, the conflicts are not only visible between political groups, but also within them – nowhere more so than in the liberal Renew group. Despite an internal agreement found earlier this week, the statements by the various Renew MEPs differed widely.

“We have to invest massively to reach our common goals in the green and digital transition and in our strategic sovereignty,” French MEP Stéphanie Yon-Courtin said, in line with the French government’s position, arguing against the EU’s austerity policies of past.

Her liberal colleague from the Netherlands, Caroline Nagtegaal, meanwhile, warned of the debts that had become “much too high”.

“Dutch taxpayers cannot be forced to pick up the tab if other countries mess up,” she said, arguing that deficits and debts needed to be curbed urgently.

The only opinion that most MEPs seemed to share was dissatisfaction with the time pressure under which member states and the EU Parliament will have to negotiate due to the late publication of the Commission’s proposal.

Given how important this file is for member state governments and given the fact that many MEPs seem to vote along national rather than parliamentary group lines, it could be challenging for the European Parliament to find a common position and impose itself as an influential actor in the negotiations with member states.

[Edited by Nathalie Weatherald]

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