(Bloomberg) -- France and Germany are divided on a key plank of new European debt rules that would determine how much countries with large budget gaps can invest, French Finance Minister Bruno Le Maire said.
Speaking ahead of a meeting with his European Union peers in Brussels, Le Maire said his country has made significant concessions to its neighbor in intense negotiations — notably on the pace of debt reduction — but that the deal is only 90% there.
“France wants clear, firm, credible rules, buy it rejects rules that would be an end in themselves and which would outlaw any investment or structural reform,” Le Maire said on a call with journalists.
France says countries in a so-called excessive deficit procedure should have some flexibility on a 0.5 percentage point annual adjustment proposed in the rules if they are investing in areas like climate and defense or undertaking overhauls to boost productivity.
Le Maire said flexibility of 0.2 points in the required adjustment of the structural deficit — a measure that strips out the impact of economic fluctuations — would be reasonable.
“We won’t accept rules that would worsen the European continent’s economic difficulties,” Le Maire said “If the pact forbids investment there won’t be any innovation, if there’s no innovation there won’t be any productivity, and if there’s no productivity there won’t be any growth in Europe.”
Speaking just before the meeting began, European Commission Vice President Valdis Dombrovskis sounded more optimistic.
“We know there are still differences among member states on the fiscal rules,” he said. “But if all countries approach this process constructively I think those differences are bridgeable. So I think it’s feasible actually to finalize those discussions today and tomorrow.”
The rules being discussed provide “more flexibility for member states to determine their fiscal-adjustment paths and also are less stringent while at the same time ensuring indeed, especially in high-debt countries, that debts are put on a clear downward trajectory,” he said.
His EU executive colleague Paolo Gentiloni — who put the odds of coming to an agreement at 51% — highlighted that budget rules require “stability and safeguards” while at the same time providing “room for investment and growth.”
“We don’t need rules that lead to austerity,” he told reporters.
If EU finance ministers fail to reach a deal this week, the discussion could be kicked up to leaders — meeting in Brussels Dec. 14-15 — to try to unblock talks, but in the end the legal approval is done by the economic and financial affairs council. The proposal needs to be agreed upon with the European Parliament too.
While the year-end deadline is self-imposed, a failure to meet it might undermine the EU’s credibility. The old fiscal rules will come back into force on Jan. 1, but capitals want to leave enough time to put in place a legislative reform ahead of EU parliament elections in June.
(Updates with Dombrovskis in starting in seventh paragraph)
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