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EU ministers narrow gaps on fiscal rules, eye end-year deal

FILE PHOTO: EU flags fly outside the European Commission in Brussels

By Jan Strupczewski

BRUSSELS (Reuters) -France, Germany and the EU executive expressed hope on Friday that EU governments will reach an agreement on the bloc's fiscal rules by the end of the year, with Spain floating the idea of convening an extraordinary meeting to achieve that goal.

France and Germany still differ on how to sustain investment when budget deficits are above EU limits, and other countries, roughly in two camps behind Paris and Berlin, are wrangling over other issues, including the minimum pace of debt reduction.

The new rules are important for bond investors and for the credibility of EU fiscal coordination as the European Central Bank needs fiscal policy to help fight inflation.

EU finance ministers debated changes to the rules on Thursday and into the early hours of Friday, aiming to agree on a joint position that would then be negotiated with the European Parliament early in 2024.

French Finance Minister Bruno Le Maire said that France was determined to reach a deal by the end of 2023. He said that he and his EU counterparts were already 95% there. German finance minister Christian Lindner put the figure at 92%.

The main issue left to agree between Paris and Berlin is how quickly a country with a deficit above the EU limit of 3% of GDP should cut it, while at the same time having enough money to invest and reform. France wants a slower pace to retain more cash for investment, Germany wants a faster reduction.

Officials said a solution under discussion was for the standard annual excessive deficit cut of 0.5% of GDP to be calculated to exclude interest payments, leaving more money for investment.

As a concession to Germany, which opposes that, this would be only temporary, for example between 2025 and 2027, when interest payments for France will nearly double, the officials said.

German Finance Minister Christian Lindner signalled Berlin's readiness to acknowledge the French position, but said more work was needed on the exact numbers for the final deal.

"We already have a common understanding when it comes to deficit and debt safeguards, now it is our task to calibrate these measures in the right way," Lindner told reporters.

"We want to maintain room for manoeuvre and for investment and new needs, for instance for defence. But we do not yet have a common understanding what numbers are sufficient," he said.

A deal could be struck at an extra meeting of finance ministers on Dec. 19, one official said.

A reform of the rules, which underpin the euro currency by setting limits on government debt at 60% of GDP and for deficits at 3%, is necessary because a surge in public debt after the COVID-19 pandemic made the existing framework unrealistic.

EU governments also have to find ways for the rules to allow for the large public investment needed to fight climate change, a challenge the old system does not address.

Time is pressing because the new rules have to get the approval of the current European Parliament which will dissolve in April before European elections in June.

(Reporting by Jan Strupczewski, additional reporting by Leigh Thomas in Paris, Charlotte Van Campenhout, Benoit Van Overstraeten, Maria Martinez; writing by Philip Blenkinsop; Editing by Toby Chopra)