Austria seeks to build coalition against softening EU budget rules

By Sabine Siebold

BRUSSELS (Reuters) - Austria is seeking to build a coalition of EU countries that would prevent a softening of EU budget rules when they come under review later this year and in 2022, calling for a stronger focus on reducing public debt.

In a letter to EU counterparts, Austrian Finance Minister Gernot Bluemel said the rules had been central to reducing debt-to-GDP ratios across the bloc after the sovereign debt crisis.

Austria is among a group of EU countries often seen as frugal, along with Sweden, Denmark and Finland, the Netherlands, Germany, the Baltics, Slovakia and the Czech Republic.

"A key lesson after the financial crisis was the need to reduce high debt ratios and increase fiscal sustainability in order to prepare for unforeseen future events," Bluemel said in the letter, seen by Reuters.

"The Commission will come up with a review of the economic governance framework in the coming months," he said, adding some ideas for reforms of the EU's Stability and Growth Pact were presented at a ministerial meeting last month.

"I am somewhat concerned about some contributions questioning a rules-based framework or diluting the value of sustainability. Our common objective must be a reduction of debt to GDP ratios over the medium- and long term," Bluemel wrote.

Some senior EU officials say the rules, which have already been revised three times and have become very complex over the years, should be simplified and focused on criteria that finance ministers can directly control, like public spending and debt.

But others say the rules should promote investment, which is key for growth, and therefore possibly exclude it from calculations of budget deficits, which now cannot be higher than 3% of GDP.

Some senior officials also say that rather than targeting their debt-to-GDP ratios, governments should focus on debt servicing costs.

They argue that because interest rates are likely to stay very low for a long time, what a country spends on debt servicing is a better measure of debt sustainability.

But Bluemel cautioned against that view.

"Even though the current financing environment is undoubtedly favourable and the interest rate-growth differential was negative over the past years before the crisis, there is no guarantee that this will always be the case," he wrote.

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"We all have witnessed the economic, social and political costs of swings in market sentiment, when policies and developments were deemed no longer sustainable."