Luxembourg – Eurozone finance ministers made progress on establishing a budget tool for the 19-member currency bloc during marathon talks that ended early Friday, but key issues remained unresolved, including how it would be financed.
Eurozone budget for the first time
Nonetheless, French Finance Minister Bruno Le Maire hailed the result as a “breakthrough” for a concept that has faced a lot of headwind, while his German counterpart, Olaf Scholz, said they had taken a “very big jump.”
“One point is now taken for granted. There is a eurozone budget and it will be operational in 2021,” he said. “For the first time, we will start to think as a coherent bloc about the future and coordinate our economic policies.”
In a meeting that lasted an overall 15 hours, the eurozone finance ministers agreed on a “very large number of principles” that will guide the budget tool, said Mario Centeno, head of their Eurogroup panel.
“But we are still in need of more work precisely on the dimension of the financial envelope,” he added. EU Economy Commissioner Pierre Moscovici noted that the issue will now be escalated to EU leaders, who are meeting next week.
The idea of a eurozone budget has been around for several years, as a means to protect the currency area against future economic downturns, following the lessons learned in the financial crisis that hit Europe in 2009.
French President Emmanuel Macron initially pitched a stand-alone multibillion-euro crisis fund, which was later whittled down to a more modest Franco-German proposal for a budget to support reforms and economic convergence.
The fund – known as the Budgetary Instrument for Convergence and Competitiveness (BICC) – will be anchored in the fiscal spending framework for the entire 28-country European Union, where limited funds will be available.
It is intended for all eurozone members and can also be joined by those lined up to enter the currency bloc. Funding will be allocated to support structural reforms and investment, in line with EU budget rules.
The initial size of the fund has most recently been envisaged at around 17 billion euros (19.1 billion dollars), spread over seven years. The final figure will emerge in negotiations over the next long-term budget.
Many negotiations and discussions
Green EU lawmaker Sven Giegold accused the ministers of turning a big idea into a “small step,” arguing that German hesitations had “stolen the ambition” from Macron’s original plan.
The key sticking point in negotiations has been whether or not to allow the option of additional revenue sources to bolster the fund. France in particular backs this approach, while the Netherlands is staunchly opposed.
Dutch Finance Minister Wopke Hoekstra praised the “long and fruitful discussions” and the progress made on the budgetary tool, as well as on separate reforms to strengthen the eurozone bailout fund, the European Stability Mechanism.
“Discussion on the finance of the BICC will continue at a later stage,” he noted.
Meanwhile, Moscovici stressed that the fund should ultimately have a role in stabilizing eurozone members against economic shocks.
“It’s the best agreement, the best compromise we could reach with the present state of play,” he said, adding that any further progress will require “political will.”
During their overnight talks, the ministers also addressed the issue of Italy’s high public debt, which rose above 132 per cent last year – more than double the 60-per-cent ceiling permitted under EU fiscal rules and one of the world’s highest levels.
The Eurogroup endorsed the European Commission’s approach on Italy, after it proposed taking disciplinary action against Rome last week. Any such move must ultimately be agreed by EU member states.
Debts and deficit ratios in the eurozone.