The key points
The return to the era of strict fiscal rules is “sealed” by the preliminary political agreement reached in the early hours of the morning by the European Council and the European Parliament regarding the long-awaited reform of the new economic governance of the European Union, the new Stability and Growth Pact.
The main objective of this reform is to ensure “sound” and sustainable public finances, while promoting sustainable and inclusive growth for all member states through reforms and investments.
After weeks of continuous consultations, the representatives of the member states and those of the European Parliament agreed on the determination of annual targets for the reduction of public debt and the limitation of public expenditure, at the request of Germany.
In essence, the compromise gives the finance ministries of the 27 member states more fiscal space for public investment, allowing countries to reduce their excess debt at a slower pace and over a period ranging from four to seven years.
< p>Satisfying the demands of France and Italy, the agreement includes a series of exceptions that will allow a gradual reduction of their public finances.
Today's compromise followed the political agreement, reached on December 21 on the so-called Stability and Growth Pact, after four years of fiscal easing as member states grappled with the effects of the pandemic, the energy crisis and inflation due to and the war in Ukraine.
“The new rules will significantly improve the existing framework by ensuring effective and enforceable rules for all EU countries,” Finance Minister Vincent van Pietgem of Belgium, whose country holds the six-month presidency of the European Council, said in a statement. “They will ensure balanced and sustainable public finances, strengthen the focus of structural reforms and boost investment, growth and job creation across the EU. I am glad that we reached a balanced agreement, which will allow its immediate implementation”, adds the Belgian finance minister.
The main points
The Council and Parliament agreed to maintain the overall goal of the reform to reduce debt and deficit ratios in a gradual, realistic, sustainable and growth-friendly way, while protecting reforms and investments in strategic areas such as digital, the green, the social or the defensive. At the same time, the new framework will provide adequate scope for counter-cyclical policies and address macroeconomic imbalances.
The agreement also maintains the obligation of member states to submit national medium-term fiscal structural plans.
The Commission is expected to submit a “route report” (previously called a “technical route”) a “road map” to Member States where the public debt exceeds 60% of the gross domestic product (GDP) or where the public deficit exceeds 3% of GDP. The temporary agreement also provides for an “optional and substantive dialogue between the member states and the Commission that will be conducted in each country separately”.
The “roadmap” will show how member states can ensure that by the end of a four-year period of fiscal adjustment, public debt either declines reasonably or remains at prudent levels over the medium term.
The interim agreement includes two “safeguards” with which the “course reference” will be determined which is none other than ensuring the sustainability of the debt – to ensure the reduction of its levels but also the durability of the deficit – to give a further “safe” margin below the reference value of the deficit, i.e. 3% of GDP, and to simultaneously create fiscal “safety” reserves.
On the basis of this “road map”, the member states will subsequently integrate their fiscal adjustment path, in terms of spending in the framework of their national medium-term fiscal structural plans. These plans – which will also include the costs – will have to be approved by the European Council. The agreement provides for an audit that will record deviations from net spending per country.
The new rules will further encourage structural reforms and public investment for sustainability and growth. Member States will be able to request an extension of the four-year fiscal adjustment period to a maximum of seven years if they implement certain reforms and investments that improve resilience and growth potential and support fiscal sustainability and respond to common EU priorities. E. These reforms will include achieving a fair, green and digital transition, ensuring energy security, strengthening social and economic resilience and, where necessary, building defense capabilities.
The latter also concerns our country, as well as France, which requested to be included in the agreement. However, the new fiscal rules are expected to be implemented from 2025. “The final agreement is not a pact that I dreamed of, it is different from the Commission's proposals, especially because it is more complicated,” said the responsible commissioner, Paolo Gentiloni. “But when we make a decision, we should be serious about implementing and strengthening it,” he said characteristically.
The provisional political agreement on the preventive arm of the economic governance framework is subject to approval by the Council, the Permanent Representatives Committee and the Parliament's Economic Affairs Committee before a formal vote in both the Council and Parliament. Once approved, the text will be published in the Official Journal of the EU and will enter into force the following day.
The corrective arm regulation and the directive on the requirements for the Member States' fiscal framework they only require consultation with the European Parliament. The aim is to be approved by the Council at the same time as the preventive part.