By Jan Strupczewski

BRUSSELS, (Reuters) –European Union members generally agree that they must amend EU laws in order to slow down debt reduction and move away complex calculated indicators. They also need to create a EU fiscal framework that can be actually followed, said senior officials from the euro zone.

EU’s fiscal rules are called the Stability and Growth Pact. They prohibit governments from borrowing excessively in order to preserve the euro’s value. These rules are often disregarded which in turn led to the 2010 sovereign default crisis. Financial penalties were not used to enforce the rules.

These rules are currently under review due to the COVID-19 Pandemic, which injected so much EU debt that they can’t apply anymore. However, fighting climate change takes enormous investments over many decades and should reflect in EU legislation.

Valdis Dombrovskis (Vice President European Commission) stated that there was some agreement about the slow adjustment of debt and the “1/20th rule”.

The rule currently is that the public sector must reduce its debt by one-fifth of excess GDP. Finance ministers consider such a rule unrealistic because many countries have debts that exceed 100%.

“We need credible debt reduction pathways. However, they must be realistic and permit for digital and green transitions,” Dombrovskis stated upon entering the meeting of Euro Zone finance ministers to discuss possible changes.

Christian Lindner from Germany, the finance minister said that a slow pace would still mean that the debt must fall.

Lindner stated that “now is the right time to build up fiscal buffers once again. We need resilience not just in the private but also in government,” as he told reporters upon entering the negotiations. Lindner stated that he supports reducing sovereign debt.

Dombrovskis stated that there is broad consensus that rules should be simplified. He said that they need to shift away from indicators such as output gaps or structural balances, which cannot be observed directly but must be calculated and often significantly revised.

The ministers are seeking to reach an agreement on modifications that will make it more beneficial for governments to follow the rules than financial sanctions. Many view this as an unfounded threat.

The realization that sanctions are not being used as much is the starting point of this discussion. “No use,” said a top official from the euro zone who was involved in the preparations of the meeting.

As the crisis reached its peak, countries of the euro zone agreed to increase financial sanctions against excessive debt and deficits.

The law also allowed for fines to be imposed on governments that fail to address other economic imbalances, such as excessive current account gaps or surpluses.

The European Commission, however, has not taken any steps to penalize any country, discrediting the use of fines for enforcement, in spite of continued violations of borrowing rules by France and Spain.

There is a consensus that the implementation of these rules will only be possible if there are national owners. The senior official stated that there is agreement and that much of the conversation focuses on strengthening ownership.