On Wednesday, the EU Commission presented a document with tougher benchmarks on debt reduction and fines. This was perceived as a concession by Berlin.

In a press statement, German Finance Minister Christian Lindner criticized the rules and called for even tougher benchmarks.

Over the weekend, central bank governors and finance ministers will meet to coordinate support for Ukraine’s reconstruction. They will also hold sessions on supporting growth within the EU.

Christine Lagarde, the ECB’s president, is concerned about the new spending rules due to Transmission Protection Instrument. The central bank can buy government bonds when individual countries are facing unsustainable borrowing costs. To qualify, a country must accept EU fiscal rules.

The talks will not be smooth, even though the commission is trying to find a middle-ground. Lindner said in a press release that he would work “constructivly,” but no one should think that Germany will automatically accept the proposals.

EUobserver was told by a diplomat from an EU country that is frugal: “But it’s only the beginning of a very technical stage of the legal negotiation.” So, I think it is safe to say that it will take time to reach a deal. The Germans are taking a tough negotiating position. This is good for us, as it helps to move the needle a little more in our favor.”

Negotiations will likely continue into next year.

Not green enough

A loose coalition of green lawmakers, economists, and NGOs has raised the alarm, warning the proposal does leave insufficient fiscal space for the countries to achieve their social and climate targets. “We are dismayed. Isabelle Brachet is a fiscal reform expert at the Brussels-based NGO CAN Europe. She said: “There are no guarantees that the fiscal space generated by this reform will actually be used to invest in climate action.”

Under the current proposal, debt pathways will be negotiated between individual member countries and the commission. They must then be approved by the Council of Member States. They will be based, in part, on a “debt sustainability analysis.”

The ‘do not significant harm’ principle of the EU does not apply to debt-reduction plans. This led the Brussels-based ZOE Institute for Future-fit Economies think tank to conclude that there are “no safeguards” to ensure that fiscal plans do “no harm to environmental or socio-economic objectives.”

Jakob Hafele, executive director of the Institute for Climate Action and Social Policy, said that the new fiscal rules do not provide enough incentives to invest in climate action and social policies.

The think tank proposes that debt incurred through green investments be given more leeway by extending the debt-reduction path.

The “obsession with debt-to-GDP ratios” is “unhelpful,” Philippa-Sigl-Glockner and Max Krahe from German think tank Dezernaz Zukunft wrote in a syndicated op-ed on Wednesday.

Researchers added that policymakers should focus on macroeconomic indicators such as the primary fiscal balance, which excludes debt service, as well as indicators of long-term success like the zero-carbon readiness level of assets in the bloc.

In a detailed analysis of EU fiscal regulations he wrote for the EU Parliament, political economist Philipp Heimberger stated that “this proposal will by a wide margin fail to provide governments with sufficient space to increase their climate investment.”