German Finance Minister urges EU to curb public spending

German Finance Minister Christian Lindner said the decision to suspend deficit and debt regulations for one more year was not an excuse for member states to continue with loose spending policies, German Finance Minister Christian Lindner said.

“The fact that member states can now deviate from the Stability and Growth pact doesn’t mean they really should,” Lindner told the Financial Times.

The Stability and Growth Pact, which includes EU fiscal rules, was suspended at the outset during the Covid-19 pandemic as economic output in Europe collapsed.

The European Commission is expected to re-apply the rules early next year as the post-pandemic economic recovery takes hold. However, the war in Ukraine and the consequent high energy prices prompted Brussels to extend the suspension for another year.

Speaking on the sidelines of a meeting of G7 finance ministers in the Rhine town of Königswinter this week, he implied EU countries should take part from the German book.

“We will not take advantage of the joint escape clause [but] will go back to our national debt, which is enshrined in our constitution,” he said, referring to Germany’s strict deficit ceiling.

The treaty, which aims to control the borrowing of member states, stipulates that public debt cannot exceed 60 percent of gross domestic product and budget deficits no more than three percent.

Some member states supported the reform, arguing that certain types of strategic government spending – such as investments in defense or climate change mitigation – would be favored.

But Lindner has made it clear he opposes that and warned not to see the suspension as an opportunity to review the EU rule as a whole. “The decision to extend the runaway clause should not be seen as a precedent or a prelude to reforming fiscal rules,” he said.

He acknowledged that there was scope for “more flexibility” in how they were applied, but insisted the EU needed a “reliable long-term path to reducing state debt.” . . Regarding the end goal, we should be tougher, not softer.”

With inflation rising among the top G7 economies, Lindner says swift action is needed to return to macroeconomic stability and what he describes as a “fiscal neutral stance.” .

“There is a real risk that inflation stagnates,” he said. “That’s why we have to act urgently.”

Lindner, leader of the pro-business and liberal Liberal Democratic Party, has a reputation for being financially hawkish, albeit one with strong European sympathies. He is an enthusiastic proponent of getting back to debt braking as quickly as possible.

He often warns that some countries in Europe have accumulated too much debt during the Covid-19 crisis and must now work to repair their public finances, especially amid rising inflation in the region. euro area.

“If you look at the data, you see that we need to stop expansionary fiscal policies and stop meddling in the market economy with massive state spending programs,” he said. “We have to reduce the budget deficit and. . . send signals from the supply side for more growth. ”

Lindner also said he opposes the EU raising new debt to cover Ukraine’s financial needs, along with the 800 billion euro EU Next Generation fund, set up to help member states rebuild. after the economic crisis caused by the pandemic.

“It was a one-time decision,” he said. “Germany does not support the idea of ​​repeating the joint issuance of debt.”

He made the distinction between calling for a new round of joint loans and the €9 billion in financial aid the EU is discussing for Ukraine, describing the latter as “another tool we have used.” in the past, based on national guarantees. used to jointly assist third countries”.

Lindner also suggested that EU capitals should consider seizing Russia’s frozen foreign exchange reserves to cover the cost of rebuilding post-war Ukraine, made earlier this month by Josep Borrell, the representative. EU high-level foreign policy.

He said Germany was “open” to the idea, but “we still need to figure out the legal issues and consequences for the international rules-based order”.

However, Lindner said he opposes the appropriation of private property by Russian oligarchs. “Countries based on the rule of law secure private property,” he said. “The barrier to confiscating it is very high.”

He suggested that private organizations such as oligarchs should be persuaded to “contribute to the reparation of Ukraine, on a voluntary basis”. “There should be a political discussion about that. . . that I want to be a part of,” he said.

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