EU budget rules need rethink, new commissioner says

They have to be able to correspond with the new economy challenges

Photo: EPA European Commissioner for Economy Paolo Gentiloni

The EU's new Economy Commissioner Paolo Gentiloni said Monday that the bloc should consider loosening its strict budget deficit rules and update it so it can respond to climate risks and weak growth, echoing a similar call by French President Emmanuel Macron.

"We have different challenges now: the fight against climate change and the danger of having low growth and low inflation for an extended period," Gentiloni told the Monday edition of the daily Sueddeutsche Zeitung, referring to the rules, which were born out of the financial crisis in order to enforce budgetary discipline among European Union Member States.

Gentiloni, a former centre-left premier in Italy, added he would launch "consultations" on the pros and cons of the rules with a view to coming up with proposals "in the second half of 2020".

The EU's so-called Growth and Stability pact limits budget deficits to 3% of gross domestic product and overall debt to 60% of GDP in Member States. Some countries have achieved compliance through either years of austerity or economic good fortune, while others lag behind with massive debt mountains. Gentiloni's  heavily-indebted native country is one of the loudest opponents of the current budget rules. 

Critics have long argued that countries need more flexibility to be able to spend where needed to boost growth and fight downturns. Macron recently added his voice to calls for EU states to be allowed to loosen the purse strings.

"We need more expansionist policies, to invest more. Europe cannot be the only area not to do it," he told The Economist.

The debate about the three-percent limit "belongs to another century", he added.

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