“Germany saved at the expense of other countries”

On Wednesday, the EU Commission will present its proposals for reforming the euro zone's debt rules. Observers consider the rules of the Stability and Growth Pact to be too lax, but EU Internal Market Commissioner Thierry Breton does not want to accept that. He himself was finance minister in France from 2005 to 2007.

During this time, the rules would have disciplined him very well, he says in an interview with WELT. “No finance minister has reduced debt as much as I have,” says Breton. "For your information, when I left the government, France's debt was 64 percent of GDP. Germany's debt level was 66 percent at the time."

WORLD: The Stability and Growth Pact has been considered a restructuring case for years. All euro countries talk about it, but want different things. Fiscally conservative countries like Germany want tougher application of the rules, and heavily indebted countries like Italy want more flexibility. How does the Commission intend to reconcile this?

Thierry Breton: Dividing Europe into frugal and wasteful states is nonsense. We need to get away from that notion. How well a government operates is a completely subjective assessment. Anyone who only ties good management to the fact that debt or the budget deficit is low is short-sighted. You always have to consider what governments spend money on.

WORLD: So there is good debt and bad debt?

Breton: Member States with high debts also spend money on things that benefit all Europeans. Take the defense. A war is raging on our continent, and this is a stark reminder of the importance of investing in common security. The EU member states that are NATO members have committed to invest two percent of their economic output in defense. But the reality is very different.

WORLD: What does that have to do with the debt rules?

Breton: Very much. If all EU member states had taken this obligation seriously, including those not in NATO, the members of the euro zone would have spent 1.3 trillion euros more on armaments since the currency union was founded than they actually have. That is 1,300 billion euros that the euro states would have incurred in additional debt.

WORLD: According to this reading, Germany should have a much higher level of debt today if it had kept to its self-imposed obligation.

Breton: Germany is a good example. If Germany had actually spent two percent of its gross domestic product on defense, that would have been around 460 billion euros more over the past 20 years. Germany's national debt would be 14 percentage points higher today than it is now. Germany saved at the expense of other countries. This also applies to other so-called frugal countries. Greece, for example, spends three percent of its economic output on defense and thus plays a very important role in defending the south-eastern part of the European continent. The Greek army protects this part of Europe and with it us. The situation is similar when it comes to climate protection.

WORLD: Do you want exceptions for defense spending in the future debt rules? France has actually been making this demand for a long time.

Breton: No, I'm not asking that we treat investments in defence, climate protection or other European public goods differently than others. But we have to take into account what individual euro countries have or have not done in these areas since the euro was founded. That has to be taken into account when considering how quickly the debt needs to be reduced. We must ensure that deleveraging does not come at the expense of investment and weaken Europe.

WORLD: And how is that supposed to happen?

Breton: When it comes to reforming the fiscal rules, we must agree that the energy transition, digitization and defense are European public goods that take precedence. It must be ensured that sustained high investments can flow into these areas in the coming years. And in this context we also have to take into account how each Member State is doing in these areas and what it has already done.

WORLD: Such exceptions open huge loopholes.

Breton: Not at all. Reforming the fiscal rules does not mean that we give up the goal of restraining public spending. I myself worked hard as finance minister to reduce the French national debt. The debts in the euro zone must decrease so that the financing conditions of the states can be adjusted again. Because if the debt levels and the financing conditions of the states drift apart, this endangers the existence of the euro zone. That is why the member states must continue to reduce their debt in a coordinated manner. But it's more comfortable for everyone if you're not constantly pointing fingers at others.

WORLD: Will that be reflected in the Commission's proposals?

Breton: My colleague Paolo Gentiloni worked on this reform for a long time. A balance is needed to ensure that member states operate thrifty and still have enough financial leeway to invest in a way that benefits all Europeans. The emphasis on European public goods. That is the new thinking in this reform.

WORLD: You and Gentiloni recently also suggested making new common European debts in the energy crisis. As with the SURE program in the Corona crisis, the Commission should borrow money and pass it on to member states as loans so that they can support households and companies with the money. Will there still be an official proposal from the Commission?

Breton: The EU member states mandated the Commission at the last EU summit to work on a mechanism to help businesses and households. But it's still too early to talk about it.

WORLD: Would the aid be limited to certain companies or sectors?

Breton: As I said, we're still working on it. But from my point of view, we are at a very special point in time. Companies are preparing their fiscal year 2023 and are faced with dramatic decisions. Some will temporarily shut down parts of their production, close them down completely or relocate them abroad to the USA or China because of the high energy costs.

We must avoid companies reacting in this way because they cannot cope with the current high energy prices. That's why we have to react quickly so that these companies have planning security and cannot wait another six months. A new EU fund would take a year to become operational. A mechanism like SURE, on the other hand, could be ready to use. And this must be about helping the sectors that are hit hardest. This affects producers of steel, aluminium, paper and glass, for example.

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