Europe’s centre-right draws up plan for tighter fiscal rules

Good morning and welcome to Europe Express.

A significant deal was reached yesterday at the OECD, with 130 out of the 139 participating countries signing off on the planned global minimum corporate tax rate strongly pushed by the US. Refuseniks include Ireland, Estonia and Hungary. (Read our full coverage here)

Meanwhile in Slovenia, the country’s EU presidency got off to a fractious and chaotic start as the European Commission challenged the country’s prime minister over topics including judicial independence and media freedom.

The clashes spilled out into the open as Frans Timmermans, commission executive vice-president, refused to appear in a “family photo” with Janez Jansa after the Slovenian prime minister appeared to accuse two judges of political bias for having been photographed together with left-of-centre MEPs.

Our main focus today turns to Brussels, where the debate over reforming the EU’s fiscal rules is quietly heating up, as politicians get to work preparing their arguments for later this year. We will take a look at how fiscal conservatives like to imagine the future regime.

We will also hear from Ireland, where pub owners are enraged at yet another delay to the reopening of their businesses. Bad craic!

Fiscal conservatism returns

The truce over EU’s laxer budgetary policy during the Covid-19 pandemic is unlikely to last much longer, writes the FT’s Brussels bureau chief Sam Fleming. While most key players declare an appetite to reform the Stability and Growth Pact, it is hard to find a lot of obvious common ground beyond that. 

Detailed discussions over reforms are not expected to begin comfortably until after the German elections in September, but behind the scenes politicians and policymakers are already busy discussing the options. 

One of the voices to track is the right-of-centre European People’s party grouping in the European parliament, which can be expected to fly the flag for fiscal stability, as will a number of northern EU member states. 

A draft position paper from MEPs from the EPP group who participate in the parliament’s economics committee gives an idea of where things are headed. 

According to the draft, seen by Europe Express, the SGP has become excessively “complex and opaque”, with a plethora of exemptions and interpretations that have given the European Commission too much discretion over how it applies the rules. 

The basic framework, laid out in the EU treaty, limiting debt to 60 per cent of gross domestic product and budget deficits to 3 per cent, cannot be changed, it argues. 

But there is plenty of room for changes in other areas, it says. Here are some of the proposals the paper lays out:

• The rules have not been effectively enforced by the commission and should instead be overseen by an “impartial referee”. This could be the European Fiscal Board, an existing commission advisory body, which would need “complete political independence” to do this job. 

• The European Semester process, under which the commission conducts regular assessments of member states’ economies, should be narrowed down mainly to fiscal policy and structural reforms. Capitals’ access to parts of the EU budget could be tied to compliance with the economic governance framework.

• Absent changes on the revenue side, a member state’s expenditure growth would need to stay below medium-term GDP growth, helping member states grow out of their debts. This might need to be “tweaked” to account for drawn-out recessions, the paper acknowledges. 

• Debt reduction paths need to take account of country-specific factors, and could be fixed via long-term agreements between the commission and the member state.

The EPP thinking, which is still at an early stage and will be debated more widely in the group in September, would cheer the hearts of fiscal conservatives. But it reflects a budgetary approach that will encounter stiff opposition from many southern member states as well as left-of-centre politicians. 

Paolo Gentiloni, the economics commissioner, has for example made no secret of his appetite to propose far-reaching legislative changes to reflect soaring debt burdens and the need for public investment. He has spoken of giving special treatment to growth-enhancing public spending as well as reconsidering the role of the region’s public debt rule and making it easier to suspend the fiscal rules in a downturn. 

It is safe to expect some hard-fought battles to come this autumn.

What do you think about changing the Stability and Growth Pact? Click here to take the poll.

Chart du jour: Not so renewable energy

Cutting forests to produce wood pellets which count as a green energy source is something the EU is being criticised for. But experts point out considerable challenges for the bloc to meet its ambitious targets for reducing greenhouse gas emissions without “heavily relying on wood biomass”. (Read more here)

Dry Ireland

They call it the land of 100,000 welcomes, but Ireland isn’t very welcoming to drinkers or publicans these days, and neither it is to diners or restaurateurs, writes Laura Noonan in Dublin. On Tuesday, the government pushed out the long-awaited reopening of indoor drinking and dining, which had been due to resume on July 5. 

That makes Ireland an outlier in Europe, where some countries like Italy and the UK have indoor drinking and dining for all, while others like Germany mostly confine indoor hospitality to those recently vaccinated or with proof of a negative Covid-19 test result. Ireland is leaning towards reopening for the select few who are vaccinated, but needs until July 19 to work out the logistics. 

The hold up is going down as well as you might expect for a country which counts Guinness as one of its greatest exports and is famed globally for the craic in its pubs. “Appalled” was the verdict of the Licensed Vintners Association (LVA), which represents Dublin pubs. Some of the other verdicts have no place in a family newsletter. 

The responses stem from frustration and desperation. Pubs that don’t serve food and don’t have outdoor seating have been closed for more than 470 days. Other pubs and restaurants are operating at greatly reduced capacity forced by serving outside only. 

I’ve never seen the industry up in arms as much

Noel Anderson, who chairs the LVA and runs The Bridge pub in an upmarket Dublin suburb and Lemon & Duke in the city centre, counts himself as one of the lucky ones. He has outdoor seating for 90 between his two pubs but says turnover is “well down”, with trade “very dependent” on the unpredictable Irish weather. 

“The uncertainty is the thing that’s killing people,” he says of the future, adding that it would be impossible for publicans to implement the two-tier system the government is proposing, where only the vaccinated would be allowed indoors. There is talk of an industry protest. Anderson, who has been in the pub trade for almost 20 years, says he has never seen the industry as upset as now.

Opposition politicians have also condemned the move as “bananas” and discriminatory since most young people in Ireland have not yet been offered a vaccine.

Publicans are at least secure in their place in Ireland’s affections, reporting that the long break from normal service has not diminished the national appetite for a pint. “The demand for outside is huge,” says Anderson. “Habits haven’t been broken.”

What to watch today

1. German Chancellor Angela Merkel is received by Queen Elizabeth II and meets Prime Minister Boris Johnson in London

2. Ursula von der Leyen zips to Lithuania to approve the country’s recovery plan

Smart reads

• Brexit, the continental view: The Netherlands, Poland, Baltic and Scandinavian countries are worried that with the UK having left the EU, the bloc lost an important counterweight to the Franco-German power couple. UK in a Changing Europe, a think-tank, has profiled member states to understand how Brexit negotiations were perceived in each country and what the expectations are looking ahead.

• What do governments want? It is no secret that EU institutions have had disagreements over how to organise the Conference on the Future of Europe. But there is less clarity as to what member states want from it. Research by the German Institute for International and Security Affairs suggests disagreements on institutional reforms, but a greater consensus for policies, particularly around the Green Deal.

• Diplomatic strategy: The Centre for European Reform is launching a series looking at Britain’s new role in foreign policy and how it can still co-operate with EU countries. In a nutshell: the smaller the group, the faster they will be able to move together.

• Smart listen: The podcast EU Scream looks at why the European Commission was able to introduce affirmative action for (mostly white) women, but so far has failed to replicate that for people of colour.

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