Unsurprisingly, traditional fiscal hawks — many of whom had long been Berlin’s closest allies on economic matters — immediately viewed the move with suspicion.
Increasing debt means bigger interest rates and for many countries the risk is “a lose-lose game,” one diplomat said. “We spend more, we pay more.”
A Spanish government official highlighted during the leaders’ meeting that because the German sovereign bond market is considered a benchmark, when their debt cost increases, borrowing costs for everyone else increase too.
When EU finance ministers convened last week, several nations cautioned Kukies that, at some point, fiscal discipline must be addressed. Three diplomats told POLITICO that even France, a frequent advocate of fiscal flexibility, refrained from supporting Germany’s push to revise the rules.
Another diplomat observed that reopening the discussion now would fuel “skepticism in the system,” not least because the fiscal rules in question have been operational for less than a year.
Countries with stretched budgets such as France, Italy or Spain were in favor of flexibility for longer, but given their limited fiscal space their main concern is being able to benefit from common funding at the EU level at a cheaper borrowing cost.
