* EU moves towards more realistic debt reduction pace
* Broad backing to move away from structural balance as
* National 'ownership' of rules key to success
BRUSSELS, Jan 17 (Reuters) - European Union countries
broadly agree they need to change EU laws to allow slower debt
reduction, move away from complex calculated indicators and come
up with an EU fiscal framework that is actually respected,
senior euro zone officials said.
The EU's fiscal rules, called the Stability and Growth Pact,
are to stop governments borrowing too much to safeguard the
value of the euro. But the rules have often been disregarded,
leading in part to the 2010 sovereign debt crisis, with little
attempt made to enforce them by applying financial penalties.
The rules are now under review because the COVID-19 pandemic
boosted EU public debt so much that existing laws can no longer
apply, while fighting climate change requires enormous
investment over decades that many argue should be reflected in
"Some areas of broad agreement seem to be emerging
concerning the more gradual adjustment path of debt reduction
and specifically the so-called 1/20th rule," European Commission
Vice President Valdis Dombrovskis told reporters on Monday.
The current rule is that governments must cut public debt
every year by 1/20th of the excess above 60% of GDP. With many
countries running debts well above 100% of GDP, such a rule is
seen as unrealistic by finance ministers.
"We need credible debt reduction pathways. But they also
need to be realistic and allow for green and digital
transition," Dombrovskis said on entering a meeting of euro zone
finance ministers who will discuss changes to the rules.
But a slower pace still meant that debt would have to fall,
Germany's finance Minster Christian Lindner said.
"Now it's the time to build up fiscal buffers again, we need
resilience not only in the private sector, but also in the
public sector," Lindner told reporters on entering the talks.
"That's why I'm very much in favor of reducing sovereign debt."
Dombrovskis said there was also broad agreement that the
rules need to be simplified and that their focus should move
away from indicators like output gaps and structural balances
that cannot be directly observed but have to be calculated and
are often substantially revised.
Finally, the ministers want to agree on changes that would
make governments observe the rules because it is beneficial,
rather than because of potential financial sanctions, which are
seen by many as an empty threat.
"The discussion is starting from the realization that
sanctions have not seen that much use. No use, to be precise," a
senior euro zone official involved in the preparation of the
To appease financial markets as the debt crisis peaked, euro
zone countries agreed in 2011 to make financial sanctions for
running excessive deficits and debt more automatic and less
subject to political discretion.
They also introduced the possibility of fines for
governments not addressing other economic imbalances such as an
excessive current account gap or surplus.
But despite continued breaches of the borrowing rules by
France, Italy, Spain or Portugal and Germany's persistently
large current account surpluses, the European Commission has
never moved to punish any country, discrediting fines as a
credible instrument of enforcement.
"There is recognition this time that implementation of the
rules depends on national ownership. There is strong agreement
on this and much of the discussion goes on how to strengthen
ownership," the senior official said.
(Additional reporting by Michael Nienaber in Berlin; Reporting
by Jan Strupczewski; Editing by Catherine Evans and Toby Chopra)