Germany raises alarm on rising tide of EU debt

Finance Minister Paschal Donohoe with his French counterpart Bruno Le Maire in Brussels. Photo: Valeria Mongelli/Bloomberg

Sarah Collins

Eurozone finance ministers failed to mask their differences on how to pay down post-Covid debts as they issued upbeat forecasts on insolvencies and inflation.

After a meeting in Brussels today, Finance Minister Paschal Donohoe said there was a “good tone” to the talks on an overhaul of the EU’s divisive budget rules, and said ministers were “aware of the need to find agreement as we move through 2022”.

But Germany’s new finance minister took a harder line, calling on EU governments to pay down their debts.

“In my view, the Stability and Growth Pact has proved its flexibility during the crisis, but now is the time to build up fiscal buffers again,” said Christian Lindner, the German coalition’s new liberal finance minister.

“We need resilience, not only in the private sector but in the public sector, and this is why I am very much in favour of reducing sovereign debt.”

The EU suspended its budget rules – which limit deficits to 3pc of gross domestic product (GDP) and forces excess debts to be paid down at a rate of 5pc a year – during the crisis.

Those rules are now under review, with the Commission due to come out with fiscal guidance for 2023 next month, and a proposal on changing the fiscal rules in June.

EU economy chief Paolo Gentiloni said ministers had a “positive discussion” and that there was “a sincere effort to find common ground”.

French finance minister Bruno Le Maire, whose country holds the rotating EU presidency, said “growth comes before stability” and compared the EU unfavourably with the US.

“We need more prosperity for Europe,” he told reporters in Brussels. “There is no reason why the European Union has a growth level of 1.2pc or 1.3pc when the US is at 2.5pc.”

New Dutch finance minister Sigrid Kaag said that while “frugality is always an asset”, she wanted to meet her EU counterparts before committing to a position.

The Netherlands has traditionally been a leading force in the so-called Hanseatic League of more frugal northern European countries, which Ireland has joined in recent years.

Meanwhile, Mr Donohoe said ministers’ view on inflation is “unchanged”, despite continued rising prices.