EU budget rules: a think tank called ESM

This Monday, the euro finance ministers are officially talking about a possible reform of the EU budget rules for the first time.

The front lines are reasonably well known.

The Italian government would like to be completely rid of the Maastricht debt criteria and the EU Stability Pact.

She doesn't want “Brussels” to talk her into her budget policy.

Other states with high debts such as France and Spain are not quite as radical, but want to soften the criteria and the pact further.

On the side of the budget guardians of virtue, Austria is currently trying to make a name for itself, supported by Scandinavian countries.

Berlin currently has no position due to the ongoing coalition negotiations.

For the time being, the pragmatic word applies that nothing needs to be changed in the rules because they are already flexible enough.

100 percent limit required

The EU Commission published its first discussion paper three weeks ago. It is difficult to say which reform it will propose in the spring because of the different interests of the states. What they can agree on in the end is even more open. It is therefore all the more surprising that one of the participants in the Eurogroup meetings already knows what the reform should look like. It is not a question of a national finance minister with clear interests, but one who ought to be neutral by virtue of his office. Klaus Regling, the head of the euro crisis fund ESM, already announced in an interview a few weeks ago that the Maastricht reference criterion for the debt level of 60 percent of the gross domestic product was no longer appropriate.

Shortly afterwards, he had a study by several ESM house economists followed up with specific proposals.

Its core is that the 60 percent limit should be raised to 100 percent.

The authors justify their idea with the fact that the previous set of rules no longer does justice to economic reality;

the current debt level can no longer be pushed below the 60 percent mark on average.

Anyone who consistently thinks this through to the end could come up with an idea that made a further reform discussion superfluous: Shouldn't we just adjust the debt limit annually to the current debt level?

The ESM exceeds its competencies

The decisive factor, however, is not the content of the study, but the fact that the ESM believes it has to take the lead in the discussion. The fund simply exceeds its competencies. Regling is the top ESM manager, but as such it is committed to its investors and owners, the member states. Their interests differ considerably in the matter, which is why the fund should remain neutral.

But that is becoming more and more difficult for Regling. When a "rescue package" had to be built for the euro zone overnight in 2010, the German was considered the ideal candidate because he combined professional competence with political restraint. His brief, sober and precise statements contributed to the fact that the financial markets did not completely lose confidence in the single currency during the euro crisis. But the more the crisis relaxed, the more communicative Regling became. At the Eurogroup meetings he usually explains the financial markets to the ministers. In October he said in front of the media that "the markets" are watching energy prices very closely. You don't need an ESM boss for such wisdom.

At the beginning of his career, Regling occasionally mentioned making the fund superfluous again as the greatest goal. The ESM's predecessor, the EFSF, should cease its work after only three years. But that was a long time ago - and given the extremely long terms of ESM loans in the Greek case, for example, the fund has a long lifespan. His core business now, loan administration, is not very exciting. Also, not every new activity is crowned with success. The extended ESM credit lines to cope with the corona consequences, which the Eurogroup launched in 2020, primarily on Regling's initiative, have not met with any demand to this day. However, it can be doubted that the ESM as a think tank has a brighter future.

Is the fund promoting a higher debt limit in order to ultimately win new customers - euro countries before bankruptcy - whom it could help with loans?

That would be an unjustified and certainly cynical assumption.

But it shows that the Fund would have been better off keeping silent in the discussion about the budget rules.