The European Stability Mechanism (ESM) continues to provide a need for discussion
No three letters in history of the EU have been as controversial as the ESM. Since it was founded in 2010, the European Stability Mechanism has also gone down in recent history as a rescue package for financially troubled countries in the European Union.
The financial aid for Greece, which most people are still very familiar with, is a good example of the situations in which one of the member states can seek help from the ESM. In order not to have to open the rescue package too often, the EU has strict guidelines for taking on debts.
The upper limit for the national debt should not be more than 60% of the annual economic output. The corona crisis and its economic consequences have helped to rekindle the discussion about raising this upper limit. How the results of the meeting in Brussels will turn out is still open.
The pros of limiting new debt
If a country that is a member of the EU gets into financial difficulties, this fact alone has an impact on other countries. Economic spending is cut or there are payment difficulties. Even before the help of the ESM can be called upon, the economic damage has also reached other countries.
With the help of the rescue package, there are also conditions and risks associated with the other member states. Comparable with guarantees, it is not so easy to completely renounce the debts or aid payments of another EU country.
Introducing or, in this case, maintaining a debt brake is an important protective mechanism that protects the entire EU from falling into a never-ending debt spiral.
The cons keeping the upper limit
Keeping the upper limit at 60% as usual is already a number that only exists on paper. New violations are registered every year, so that reality more reflects the required 100%. In addition, the EU benefits from a strong euro.
If news of over-indebted EU countries emerges, this damage to the image can often be observed on the same day in the development of the euro. One factor that has received too little attention in the entire discussion is the question of why it is so difficult for some countries to keep national debt below the stated limit.
Sanctions will not solve these problems any more than the permanent increase of the upper limit. Sooner or later, a solution has to be found that goes to the root of the problem.
The opponents have so far shown little willingness to compromise
As on the football field, some of the participants from different European countries are ready to go into extra time to win the battle. Proponents of raising the limit include Italy and France, while Austria and the majority of Scandinavian countries are pushing for no changes.
A factual solution does not seem to be possible in a single meeting due to the hardened fronts. In the end, as is so often the case, it will aim to include other decisions. In order to choose XYZ, opinions have to be softened and more willingness to compromise has to emerge.
Germany has not yet been represented with any specific opinion
The federal elections on September 26th and the ongoing coalition negotiations have contributed to the fact that Germany has not yet entered the discussion about the ESM.
However, Germany has learned its lessons from Greece’s financial crisis. It is therefore rather unlikely that the new governments will open the door to such scenarios any easier in the future. It therefore remains to be seen which of the two camps can pull the majority of EU states on its side.