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German finance chief calls for more fiscal discipline across EU

EU member countries should rein in public spending despite the decision to loosen the bloc’s debt and deficit rules during the COVID-19 crisis, German Finance Minister Christian Lindner said.

“The fact that member states are now able to deviate from the Stability and Growth Pact doesn’t mean they actually should do that,” Lindner told the Financial Times on the sidelines of last week’s meeting of the G7 finance ministers.

The Stability and Growth Pact, which was put on hold during the pandemic and again during the surge of prices due to the Ukraine war, stipulates that budget deficits should not exceed 3 percent of a country’s gross domestic product and public debt should not exceed 60 percent.

“There is a real danger of stagflation,” Lindner said, referring to the risk that the bloc enters a period of slow growth and high inflation that would hit consumer buying power hard. “That’s why we have to act urgently.”

Lindner, leader of the liberal and pro-business Free Democrats, also warned against using the temporary suspension of the EU’s rules as a reason for reforming them in depth. He said that the EU needed a “long-term reliable path towards reducing state debt … In terms of our ultimate goal, we should become tougher, not softer,” the FT quoted him as saying.

The Stability and Growth Pact has often been criticized for its strict and inflexible rules and there have been calls to reform it and exclude strategic areas such as defense or climate change investments from its scope.

But Lindner insisted Germany itself would favor returning to its strict fiscal rules.

“We will not be taking advantage of the general escape clause [but] will return to our national debt brake, which is anchored in our constitution,” he said.

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