Laschet Says EU Budget Rules Must Be Reinstated After Covid

Armin Laschet, the front-runner to succeed Angela Merkel as chancellor, called for the reinstatement of European Union budget rules once the pandemic is over as he outlined plans for a somewhat more assertive Germany after September’s election.

The 60-year-old leader of the Christian Democratic Union said Germany too needs to return to constitutional spending limits, rejecting a push by the Greens -- his most likely coalition partner -- to loosen the rules to allow more public investment in new technology. In another potential source of coalition tension, he insisted Russian gas would flow through the controversial Nord Stream 2 pipeline.

“When this crisis is over, when its effects on the global economy are over, German as well as European politics will have to return to the stability policies as defined in the Maastricht Treaty,” Laschet said on Thursday in a Bloomberg webinar.

Laschet Says EU Budget Rules Must Be Reinstated After Covid

With little more than three months before national vote, Laschet has cemented his place as the strong favorite to lead Europe’s largest economy. The consensus-oriented moderate has vowed to continue Merkel’s centrist approach to counter the Greens and their candidate Annalena Baerbock.

Laschet Says EU Budget Rules Must Be Reinstated After Covid

Yet he gave hints of a firmer approach to dealing with Germany’s EU partners. He raised the prospect of a shift to qualified majority voting on key foreign policy decisions, a move that would strip smaller states of the leverage they get from their veto powers.

Laschet welcomed U.S. President Joe Biden’s trip to Europe, saying the world’s problems can only be solved with a multilateral approach. He said that Germany needs to pursue its interests through the EU and international institutions, rather than going it alone.

He also brushed off concerns from both other EU countries and the U.S. that Germany’s commitment to a second gas link with Russia would compromise Ukraine’s position as a key transit country.

“You build pipelines so that gas flows,” he said, insisting that Russia will have to respect Ukraine’s sovereignty.

His position on EU budget criteria sends a signal that Germany may return to its role as the bloc’s fiscal watchdog, putting pressure on highly indebted countries like Italy and indicating that the joint borrowing to fund the EU recovery fund is unlikely to be repeated.

The EU’s Stability and Growth Pact was suspended when the coronavirus hit, and few believe it can ever return in the same form. It was already set to be rewritten before the pandemic started, with the rules frequently breached. They require countries to aim for budget deficits of less than 3% and debt burdens below 60% of gross domestic product.

Laschet Says EU Budget Rules Must Be Reinstated After Covid

Distrust is likely to be a key hurdle to reaching agreement on what comes next. Politicians in countries such as Germany and the Netherlands have long called for debt burdens to be reduced, and railed against southern nations such as Italy and Spain that they see as spendthrift and dependent on the help of others.

Domestically, Laschet said Germany is “obliged” to return to constitutional spending limits, known as the debt brake, and said he wouldn’t bend on changes. That sets up a collision with Finance Minister Olaf Scholz, his Social Democratic rival for the chancellery, who is aiming to borrow about 100 billion euros ($120 billion) in additional funds next year to mitigate the impact of the coronavirus pandemic, according to a person familiar with discussions.

Laschet also ruled out tax increases to fund higher levels of government spending, describing a traditional conservative approach to economic policy that allows the private sector to take the lead.

“We want to enable economic growth after the pandemic,” Laschet said. “Tax increases would be the wrong signal at this moment.”

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