Refugee crisis reignites EU debate over budget rules

The soaring costs of handling the unprecedented influx of refugees into Europe have opened up new fault lines within the EU in its never-ending debate about the bloc's budget rules.

In the past, Germany, as the self-appointed arbiter of fiscal rectitude, has tended to find itself pitted against countries such as France and Italy in the constant tug-of-war over spending targets.

But this time, it is a fellow austerity ally, Austria, which is at loggerheads with Berlin as the humanitarian crisis threatens to stretch member states' finances to the limit.

"It is not fair if those member states that are particularly humane and take on the task and cost of looking after the asylum-seekers are punished by Brussels for excessive spending," Vienna's finance minister Hans-Joerg Schelling said.

He made a plea for the European Commission to apply a special clause in the European Stability and Growth Pact allowing the deficit ceiling of 3.0 percent of output to be exceeded in exceptional circumstances.

Austria's public deficit is set to reach 2.0 percent of gross domestic product (GDP) this year, according to forecasts released in the spring. But it has had to cope with tens of thousands of migrants passing through its borders en route to Germany.

- Same old debate -

By voicing such demands, Schelling is pouring oil on the flames of an old debate over whether exceptional spending should be included in the calculation of a country's so-called "structural" or underlying deficit.

A number of European countries, such as Italy, have long argued that certain expenditures -- such as investment -- are taken out of the equation.
The costs of the unprecedented refugee crisis will only add further grist to the mill.

Italy "is one of the countries that spends the most" on refugees, said its finance minister, Pier Carlo Padoan, insisting that it should be a European priority to isolate spending on refugees.

The topic is similarily getting Belgium, Ireland and Luxembourg -- which currently holds the European Union's presidency -- hot under the collar and the Commission, the EU's executive arm, has been asked to undertake an analysis.

France has so far stayed out of the debate. It is expected to exceed the 3.0-percent deficit limit both this year and next.

For the time being, Brussels appears non-committal. The Commission "will apply the rules of the Stability and Growth Pact .... while taking into account all factors," said EU commissioner for economic and monetary affairs Pierre Moscovici.

But Berlin is digging in its heels. German Finance Minister Wolfgang Schaeuble insisted Saturday that the refugee crisis "shouldn't be instrumentalised" in the budget debate.

"There doesn't need to be a refugee crisis for some people to want to abolish the stability criteria," he joked.

- 'Capacity to act' -

Berlin wants first to find a political solution for sharing out the numbers of refugees across Europe and then talk about the costs afterwards. Schaeuble, who believes that the welfare of monetary union lies in fiscal rectitude, is worried about the possible domino effect of easing the rules.
Among Germany's key regional states, Bavaria, which for many refugees is the first stopping point as they cross the border from Austria, wants the fiscal rules relaxed.

But Chancellor Angela Merkel and Schaeuble are ill-disposed to such demands as they argue that budgetary rigour has put Germany in a comfortable enough position financially to cope with the additional costs of the refugee crisis.

"The path we have chosen is proving to be the right one," Merkel said, stressing that its healthy finances gave Germany the "capacity to act" and take in the refugees.

Germany expects to receive between 800,000 and one million asylum seekers this year, representing additional expenditure in its budget of close to 10 billion euros.

But Schaeuble insists that Germany must not abandon its prized balanced budget as a result and warns cuts should be made elsewhere.