German Finance Minister Christian Lindner, a self-described budget hawk, is offering a trade-off in the ongoing EU fiscal rules debate: Tighter enforcement of spending limits, in exchange of a degree of flexibility on the pace of debt reduction.
In an interview published Thursday in Handelsblatt, he delivered Berlin's opening salvo. "I advocate for more binding rules, but in a realistic way," he said. "Almost like Halloween: trick-or-treating."
Lindner ruled out changing the EU's 3 percent cap on annual deficit and its 60 percent debt-to-GDP threshold — a move that would have been difficult in any case, as it would require unanimity among EU capitals.
Instead, he called on member states to make the so-called medium term budgetary objectives under the EU's fiscal rules binding. These are country-specific budgetary targets that countries should aim for by limiting their budget deficit to 0.5 percent per year.
If a country doesn't do that, the Commission could issue a warning — dubbed a "significant deviation procedure" — before launching the full-blown sanction of an "excessive deficit procedure," which could eventually levy fines on countries in breach.
In practice, these rules are seldom enforced — something Lindner wants to change.
"So far ... these have been decisions at the discretion of the EU Commission. I'm afraid that makes them irrelevant," he argued. "My proposal is therefore aimed at making these medium-term budgetary targets binding."
If a country falls short of those objectives, "its financial plan would not be accepted," Lindner said.
In exchange, Lindner proposed waiving a rule requiring countries to reduce their excess debt by 5 percent per year — a requirement that "has been overtaken by reality" due to the piles of debt that governments took on during the pandemic, he acknowledged.
Lindner, a liberal, noted that the other parties in Germany's governing coalition — the Social Democrats and the Greens — have "agreed on the principles" of his proposals.
The Commission has said it'll present proposals after the summer on how it intends to reform the rules. An EU official, while recognizing Lindner's overture, said that foregoing the "1/20 rule" is akin to "acknowledging the wheel has been invented."
This story has been updated.
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