Reimposing the full fiscal rules, which have a clause for governments to borrow more in an emergency, in 2023 or beyond is hard to imagine, according to Claus Vistesen at Pantheon Macroeconomics.
“The rules are already gone. Nobody believes they are going to come back in their original form,” he says, raising the possibility of more flexibility towards countries borrowing to spend on infrastructure or green energy.
“The German government has been a little bit woolly on this. Officially, budget discipline is still the name of the game. But they will, as a whole, be much more friendly to the idea of slightly less disciplined fiscal rules in the EU going forward.”
The hope in Paris is that this is the best moment to set the agenda in favour of an important French demand, with support from Draghi and the new German Chancellor.
Daniela Ordonez, chief French economist at Oxford Economics, says Macron’s tactic of casting higher spending in an appealing light – in terms of investment, innovation and reindustrialisation – may have some success with “frugal” countries’ leaders, but that he could still struggle with his voters.
“The German government is quite aware of what is needed, how costly it will be to recover from the coronavirus crisis and to update all the industry in Europe to remain competitive against China or the US.
“But the German population, which is very attached to the zero deficit and is very afraid of public debt… can be difficult to convince.”
Even if Germany does yield, she warns Austria and the Netherlands might resist any change to the rules.
Borrowing regulations might be significant economically, but they are unlikely to get voters fired up for April’s election.
Macron will also need a quick win if he is to make the most of the coming months.
Schmieding predicts that will come in green energy, in which the EU wants to be seen as a global leader.
That could include labelling nuclear power as green, marking “a French success” in a matter of months. But even this is not conflict-free.
Much of the new action required to slash emissions will be expensive and time consuming, at a time when surging gas prices are hitting family finances.
But Vistesen warns that any steps to combat this cost of living crisis by slowing the energy transition, or going soft on gas and the associated emissions, will rile the Germans where the Greens are part of the ruling coalition.
“This is a huge problem – effectively, a quick energy transition in Europe is tantamount to a huge regressive tax hike on low-income people, because you end up with a massive increase in the price of energy in the near term, with the hope that in 20 to 30 years’ time the air will be clean,” he says.
If France tries to tweak the rules, they will face German accusations of “greenwashing”, he says. “This is going to be a massive debate in Europe in the next year.”