Why a decision on EU debt and deficit rules is going to the wire

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Good morning. There are seven short days left until the last EU leaders’ summit of the year, and no sign of a compromise deal on any of the key issues that will be discussed there. The bloc’s diplomats will earn their Christmas break over the coming week.

Today, our excellent new finance and economy correspondent walks you through the crunch decision on debt and deficit rules facing EU ministers tonight over supper, while our Athens correspondent previews the first visit by Turkey’s president to Greece in six years.

Main course

Finance ministers are due to chew on a reform of EU fiscal rules at dinner this evening, but a compromise digestible to all is proving hard to serve up, writes Paola Tamma.

Context: Rules governing debt and deficits in the EU, known as the Stability and Growth Pact, are considered too strict and were haphazardly enforced. The European Commission in spring proposed an overhaul in favour of multiannual, custom-made spending plans, essentially giving countries more time to bring down excessive debt.

But the proposals were considered too lax by a group of countries led by Germany, who successfully pushed for tighter requirements or “safeguards”.

The latest compromise that’s in front of ministers today further accedes to German demands by setting numerical targets for annual debt cuts and limiting annual spending.

“We see that as a big success in the negotiations,” a senior German official said, rating the chances of a deal at 50/50, “if not better”.

This in turn roils others, including France and Italy, who fear they have little to gain from swapping the status quo, imperfect as it is, for a reform that would curtail public investments and constrain spending at a time of rising interest costs.

The commission is also afraid that the safeguards grafted on its proposal fundamentally undermine the goal of having simpler rules that would not deepen an economic contraction.

“The goal of simplification is out of the window. That of creating a countercyclical system is at risk,” said an EU official.

Still, for many if not all, a bad deal is better than no deal.

“I think we still will be arriving at a system that will preserve the basic parameters of the commission’s proposal, even though maybe with some substantial deviations,” EU executive vice-president Valdis Dombrovskis told the Financial Times.

Spain’s goal is to get ministers to back a deal by Friday. It would then be up to Belgium, who’s taking over the rotating EU Council presidency from Spain in January, to negotiate a compromise with parliament, which still needs to vote on its own position.

The final goal is to wrap this up before EU elections next June. Bon appétit.

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Frenemies

Turkish President Recep Tayyip Erdoğan visits Athens today for the first time since 2017 to meet Greek Prime Minister Kyriakos Mitsotakis, aiming to reinforce the recently warming climate between the two leaders, writes Eleni Varvitsioti.

Context: Relations between Athens and Ankara have been rocky for years, with tensions heightening in 2020 when Turkey sent warships alongside a survey ship to look for possible oil and gas reserves in disputed waters in the Aegean.

The two leaders have not had direct, bilateral contact since May 2022, when Mitsotakis lobbied against Ankara’s efforts to buy F-16 fighter jets from Washington. “There’s no longer anyone called Mitsotakis in my book,” Erdoğan said back then.

Erdoğan yesterday explicitly linked Washington’s approval for that F-16 purchase to Turkey’s approval of Sweden’s membership of Nato — another issue that the two leaders are likely to discuss.

The visit follows Greece’s response to a devastating earthquake in Turkey last February, which left thousands dead and millions displaced. Athens saw it as an opportunity to unfreeze the diplomatic relations between the two countries and was one of the first countries to send humanitarian aid.

One of the main items on the agenda today will be migration and improving communication channels between the two countries’ coast guards.

There is also an expected announcement of an initiative to grant Turkish citizens one-year visas to visit the East Aegean Islands.

What to watch today

1. European Council president Charles Michel and European Commission president Ursula von der Leyen are in Beijing for the EU-China summit.

2. French President Emmanuel Macron hosts Hungary’s Prime Minister Viktor Orbán for a working dinner in Paris.

3. Eurogroup finance ministers meet.

4. EU industry ministers meet.

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