Today @EU_Commission formally begins its “reflection/review” of EU fiscal rules. This is a BIG deal. The outcome will basically determine whether EU faces a fiscal cliff in 2023 or not. Short thread on 5 (worrying?) trends to watch that'll decisively shape how debate plays out 1/
1/ Process: As always in EU, key to substance. Fiscal hawks @VDombrovskis & Northern European member states want @EU_Commission annual fiscal surveillance cycle (starting next Apr) & fiscal review to be decoupled. Put diff: to default to old rules while new ones are worked out 2/
.@PaoloGentiloni believes momentum behind reform will be stronger if Commission’s surveillance & reflection are linked. Makes sense: why would @EU_Commission go back to old rules if it was clear they were changing? Whoever wins this process point will be 1/2 way on substance 3/
2/ Germany: @OlafScholz position on EU fiscal policy remains fundamentally ambiguous. He says SGP is “flexible enough” & doesn't support legislative changes. But he also says no sizeable austerity is expected from member states & is open to climate investments in EU 4/
His new🚦Govt will increase public inv at home (ostensibly respecting debt brake - 🧐 yeah right). But it's not clear whether this will be coherent with EU fiscal agenda or at the expense of it - not least given @c_lindner in FinMin. Where 🇩🇪 lands will obviously be key for EU 5/
3/ France: There's also worrying signs 🇫🇷 will be much more cautious - only seeking guarantees there will be no EDP & pushing for a general debate on inv/growth as senior figures around @EmmanuelMacron don't want a divisive debate in EU playing out at same time as his election 6/
But many in Bxl question whether @Elysee & Bercy (as Fin Min is known) are on same page. 🇫🇷 will be a key voice in EU fiscal debate - not least given French EU Presidency in first 6 months of next yr. How hard Fr chooses to push cd therefore have a decisive impact on outcome 7/
4/ Dutch/northern hawks: @MinPres will push hard for old rules to be FULLY implemented (incl EDP's) as new ones are worked out. Not bc he believes they will be, but bc he wants these to serve as baseline for negotiations - constraining how ambitious any changes will likely be 8/
Northern Europe remains very transactional (pushing for fiscal discipline for having signed off on €750bn Recovery Fund). @PaoloGentiloni is trying to reframe debate - this was exceptional support in exceptional circumstances; let's see what gradual steps South can now take 9/
5/ Last point is @EU_Commission is itself divided with @PaoloGentiloni on side of reform & @VDombrovskis & @JHahnEU arguing for minimal change. @vonderleyen is instinctively with reformers-but as a weak President facing several crises (energy, Pol) it's unclear she'll succeed 10/
This is political context in which reform of EU fiscal rules will take place. It's too early to say where substance will land - many in @EU_Commission think the review itself will help those pushing for change. Let's hope so - despite worrying signs from 🇩🇪 & 🇫🇷 & indeed 🇪🇺 ENDS
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