May 15, 2021

The Eurogroup debates how to swell the embryonic budget of the eurozone

The ministers of Economy and Finance of the euro area, the Eurogroup, will debate on Monday the possibility of contributing additional funds to the so-called budget for the eurozone, a mechanism to finance reforms and investments whose initial allocation would be just 13,000 million euros for seven years.

In addition, the ministers will address for the first time the revision of the European tax rules launched this month by the European Commission, as well as the latest macroeconomic forecasts from Brussels, which already point to the risk of the coronavirus for a eurozone economy that will stagnate the increase.

In 2018 the Eurogroup initiated a negotiation aimed at establishing its own budget for the area of ​​the single currency that would serve as a shield against future crises, but after months of negotiations the only possible consensus was the creation, in 2019, of a “budgetary instrument” that is limited to promoting competitiveness and convergence between euro countries.

Although it would be a first step towards a genuine budget, the provision planned for the moment is far from the initial ambitions of some countries, since it would have 12,903 million euros for the period 2021-20217, according to the latest proposal of multiannual budget for the European Union, presented last Friday.

However, at the initiative of France and Germany, the ministers have studied the possibility of the 19 eurozone countries contributing additional funds to this instrument through an intergovernmental agreement, something that does not convince all countries.

The agreement that the ministers could close tomorrow goes along the lines of allowing this intergovernmental arrangement, as long as the contribution of funds is voluntary, according to sources from the Spanish Ministry of Economy.

Although Spain would have preferred participation to be mandatory, the Government will support this consensus since “right now there are no things to impose on all other countries” participation, and with the expectation that in the end everyone will end up joining voluntarily, they point out these sources.

European sources admit that countries are “fairly divided” on the issue, but they emphasize that the objective is to give clarity to European leaders on how the instrument would be financed, so that they can take it into account when negotiating the 2021-2027 community budget in Your summit on Thursday.

On the other hand, the ministers will discuss for the first time the revision that aims to simplify the European norms of budgetary discipline, with a view to allowing the European Commission to officially propose changes at the end of the year.

Although the starting points are different, the countries agree on “prudence when it comes to getting into a major reform without having a clear objective,” European sources explain.

Spain is in favor of proposing concrete reforms, without opening the entire regulatory framework, and advocates giving more weight to criteria that are easy to measure, such as public debt or the spending rule, to the detriment of some very complex ones used so far, such as structural deficit or potential growth.

The Eurogroup will also examine the Commission’s macroeconomic forecasts, which predict that growth in the eurozone will stagnate at 1.2% in 2020 and 2021 and warn of risks such as uncertainty about the new relationship with the United Kingdom or the coronavirus, from which he expects a limited impact globally.


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