German Finance Minister: Existing EU Fiscal Rules Very Flexible; ‘They Work’

27 April 2021

By David Barwick – Frankfurt (Econostream) – German Finance Minister Olaf Scholz on Tuesday indicated that he felt the existing EU fiscal rules were sufficiently flexible.

In an interview with German weekly Die Zeit, Scholz, asked if he was open to a reform of the EU Stability and Growth Pact, said evasively that ‘[a] common currency needs common rules. Our rules have just proven to be very flexible, they work.’

Pressed, he responded that he was ‘a pragmatist: what is important to me is that we can do what is necessary now. We have been able to do that so far and I believe that we will be able to do it in the future as well.’

Scholz’ French counterpart, Bruno Le Maire, who was interviewed jointly, diplomatically agreed that ‘[a]t the moment we can use the flexibility that is built into the Pact’, but added that he saw a need in the future ‘to reflect in common on our common fiscal framework.’

‘Today, we should not repeat the mistake made during the last crisis, when we wanted to consolidate the budgets too early and damaged the recovery’, Le Maire said. ‘But of course, there will be a time when we will talk about reducing deficits and debt levels.’

For now, investment was the key, he said, as citizens demanded growth and employment. ‘Looking beyond, we will need to draw lessons from the past and review when needed our common rules to ensure a better functioning of our common currency’, he said. ‘One key question will be to take into account the very different situations in which the member states will be in terms of debt.’

Both finance ministers supported a global minimum tax on digital corporations, Scholz declaring that with new US support for the initiative, ‘[w]e now have the necessary momentum to reach an agreement this summer.’

‘[T]he change of position within the U.S. administration is clearly very good news’, Le Maire said. ‘For us it is important that minimum taxation and digital taxation go along together. We need to agree on a package. We are eager that a global agreement be found this summer.’

As for the US proposal of a 21% minimum tax, ‘[s]uch a rate would be acceptable for the French government if there is a consensus’, Le Maire said.

‘It is important to agree on a percentage’, Scholz said more guardedly. ‘Exactly where that will be will emerge from the talks in the coming weeks. Personally, I would have nothing against the US proposal.’

Talks with EU member states seen as less amenable to such a framework are ‘underway, and there is much to suggest that we will reach an agreement’, Scholz said. ‘The level of the tax rate is part of these talks.’