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Germany sees 50% chance of agreement on EU fiscal rules on Friday - govt sources

FILE PHOTO: FILE PHOTO: Flags fly at ECB headquarters in Frankfurt, Germany

BERLIN (Reuters) - There is a real chance of reaching an agreement on the reform of European Union fiscal rules on Friday, German finance ministry sources said.

"There is at least a 50-50 chance, if not better," one of the sources said on Wednesday.

This contrasted with the pessimism of EU officials, who consider a deal on EU fiscal rules to be unlikely this year because the differences between countries on the pace needed to consolidate public finances are too big.

EU finance ministers are to discuss changes to the rules on Friday, aiming to agree on a joint position that would then be negotiated with the European Parliament early in 2024.

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There have been very intensive talks between Paris and Berlin over the past weeks, the sources said.

"An agreement on EU fiscal rules won't fail due to disagreement between France and Germany," a source said.

The rules have been suspended since 2020 but are to be reinstated from 2024, and EU governments want to update them before they kick in again.

A new compromise proposed by the Spanish presidency on the preventive arm of the Stability and Growth Pact has been positively received by Germany but the country still sees a huge challenge in the corrective arm, with ongoing discussion regarding the reference value.

Berlin also wants the new rules to say governments must aim for budget deficits well below 3%, creating a buffer to cover unexpected events. This would further limit the room for fiscal manoeuvre for national governments.

A red line for Germany is that interest costs should not be deducted in deficit procedures when reducing structural balances, finance ministry sources said on Wednesday.

"We are going there with the firm intention of reaching an agreement, but of course an agreement is not at any price," one of the sources said.

EU officials said a delay in a deal until early next year would not have much impact on euro zone fiscal policy in 2024 because draft budgets for next year have been constructed on existing Commission recommendations.

(Reporting by Maria Martinez, Christian Kraemer and Jan Strupczewski, editing by Kirsti Knolle and Bernadette Baum)