European Commission proposes to ease fiscal rules for a ‘new reality’

The European Commission presented long-awaited proposals on overhauling the Union’s fiscal rules on Wednesday (November 9th) – after a decade of austerity, European countries have been exposed to the new challenges of rising prices and energy.

The new rules, apparently modeled on the structure of the Covid-19 recovery fund, would require governments to negotiate a four-year debt-reduction path with the commission and then EU ministers give it the green light.

  • EU Commissioners Valdis Dombrovskis and Paolo Gentiloni present the revised rules (Photo: European Commission)

These four years could be extended to seven, if the extra time is justified by investments and reforms that correspond to EU priorities, such as the fight against climate change.

The commission would then monitor those plans – and sanction a member state that fails to stick to the agreed deal.

European Commission Vice-President Valdis Dombrovskis said the aim was “to put in place a simpler system of fiscal rules with greater country ownership and more scope for debt reduction, but combined with stricter enforcement”.

The reference values ​​in the EU Treaty remain: for the deficit at 3% of GDP and for the debt at 60% of GDP.

The proposal would also move away from the one-time obligation of annual debt reductions of one-twentieth of debt above 60% of GDP, which is the EU’s threshold for public debt.

Italy is struggling with a debt of around 150% of GDP, while Greece saw its debt swell to 186% of GDP after the financial crisis.

Another idea of ​​the commission is to focus on net primary expenditure, ie public expenditure that excludes debt interest. Governments have already complained that the previous focus on the structural deficit was too complex and less of a stable indicator.

The committee hopes that EU leaders can agree on the basics of the new fiscal rules at the February 2023 summit at the latest, and then the executive can roll out the legal texts that underpin the rules.

The aim is for the new configuration to come into force in 2024.

“Some, like us, will consider it overly prescriptive towards over-indebted countries, others, like the Nordic countries, will find it unnecessarily lax,” Italy’s Economy Minister Giancarlo Giorgetti told a panel of lawmakers on Wednesday, according to Reuters.

“There will be a tough negotiation,” he said.

Germany and other fiscally conservative countries fear that bilaterally negotiated deals could allow countries to postpone reforms and investments, weighing on all eurozone countries.

To influence so-called “frugal” states, the commission proposed tougher penalties, but with lower fines.

However, there is a lack of confidence in the commission, which has not offered sanctions or fines to any member state – despite tougher rules agreed in 2011 amid the euro crisis – for breaking the rules. budget rules. Some Member States, including France, Spain and Portugal, have done so.

“The challenge now is to find an agreement by next year. For this, France and Germany should come closer and avoid a new open flank in their relations”, tweeted Johannes Lindner, co-director of the Jacques Delors Center. based in Berlin.

“New Realities”

Austerity during the economic crisis, then soaring public debt as governments across Europe paid to support businesses and households amid the Covid-19 emergency, made it impossible to reduce debt at the current rate.

The EU actually suspended its fiscal rules at the start of 2020, to prevent Europe’s economies from collapsing, but the 25-year-old pact is set to be reactivated next year.

Dombrovskis said the proposals deal with “new realities” because “almost all member states have broken the rules at one time or another”.

The former Latvian prime minister said that “debt and deficit levels are significantly higher than ten years ago”.

However, officials stopped short of the crippling austerity measures that have been blamed for much social distress over the past decade.

European Economic Commissioner Paolo Gentiloni said “austerity was not strictly linked to these kinds of rules”, but acknowledged that in hindsight it is true that investments have not been kept at the level that they are today. they should have been.

He added that the debt reduction rules had become “increasingly unrealistic”. However, the former Italian prime minister added that the 3% deficit threshold “was useful in signaling to governments that the money is not free”.


Not all news on the site expresses the point of view of the site, but we transmit this news automatically and translate it through programmatic technology on the site and not from a human editor.
Back to top button