EU to mull changes to budget rules, debt, green investment in focus

European Union finance ministers will begin discussing on Friday how to change their budget rules to deal with a huge rise in government debt during the coronavirus pandemic and how to encourage spending needed to arrest climate change.

Potential options include exempting "green" investments from calculations of deficit and debt limits and temporarily forgetting existing rules that say debt must be cut every year, documents prepared for the ministers' talks showed.

"The challenge in coming years will be to consolidate deficits while increasing green investments to achieve the ambitious targets of the EU to cut emissions or any other investments," a note prepared by host Slovenia said.

Slovenia currently holds the EU's rotating six-month presidency and will chair the talks.

An analysis commissioned by the ministers from the Bruegel think-tank showed additional public investment to meet the EU's climate goals will have to be 0.5%-1.0% of GDP annually during this decade and that may require flexibility in the rules.

"There are substantial investment needs that will be very difficult to achieve in the current fiscal setting," the Bruegel paper said. "Past consolidation episodes resulted in major public investment cuts, while now there is a need for a major increase in investment."

"A 'green golden rule' (excluding net green investment from the fiscal indicators used to measure fiscal rule compliance) is the most promising option to address this tension," it said.

EU budget rules, created in 1997 and changed three times since then, set limits on government borrowing to protect the value of the euro. They require EU countries to cut debt below 60% of GDP and annual deficits to below 3% of GDP or face fines.