New debt rules for EU states have been adopted
Published: Monday, Apr 29th 2024, 11:10
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Public debt and budget deficits in the EU have been the subject of reform for years, and the plans have become more concrete in recent months. The reform is now complete.
In future, the European Union will be subject to new rules on national debt and budget deficits in member states. On Monday in Luxembourg, the Council of Ministers finally adopted reform plans for the so-called Stability and Growth Pact, as EU diplomats confirmed to the German Press Agency.
The confirmation by the Council of the European Union was the last necessary step for the long-planned reform of the rules. Among other things, it stipulates upper debt limits for countries. In future, for example, clear minimum requirements will apply to how highly indebted countries reduce their debt ratios. At the same time, the individual situation of countries is to be given greater consideration when setting EU targets.
Last week, the European Parliament in Strasbourg approved the reform plans. Following confirmation by the EU countries, the new regulations must now be published in the EU Official Journal before they can enter into force. This is expected to happen at the beginning of May.
What is the Stability and Growth Pact?
The set of rules is intended to ensure budget discipline in the countries and thus guarantee sound public finances. These are considered an important prerequisite for stability in the EU and the eurozone. If the upper limits are exceeded, debt penalty procedures, known as deficit procedures, can be initiated. A country must then introduce countermeasures to reduce its debt and deficit.
The previous rules from the 1990s have long been considered too complicated and too strict by critics. Most recently, however, criminal proceedings were completely suspended due to the coronavirus crisis and the consequences of the Russian attack on Ukraine. In 2020 in particular, deficits in almost all EU countries were well above the three percent mark.
What should apply in future
In principle, the new regulations will continue to stipulate that the debt level of a member state may not exceed 60 percent of economic output. In addition, the general government deficit - i.e. the gap between public budget revenue and expenditure, which is to be covered primarily by borrowing - is to be kept below three percent of gross domestic product (GDP).
However, according to the plans, the individual situation of countries will be taken into greater consideration in future. For example, the EU Commission responsible for supervision is to be able to take into account the increase in interest payments when calculating the adjustment efforts during a transitional period. If member states present credible reform and investment plans that improve resilience and growth potential, it should also be possible to extend the debt reduction period.
Protective measures are also planned: Highly indebted countries with a debt level of more than 90 percent will have to reduce their debt ratio by one percentage point per year, countries with debt levels between 60 and 90 percent by 0.5 percentage points.
Why the new regulations are controversial
Critics always emphasize that the rules would stifle necessary investments, for example in climate protection or in the social sector. An analysis by the European Trade Union Confederation (ETUC) and the New Economics Foundation (NEF) came to the conclusion at the beginning of April that only Denmark, Sweden and Ireland would be able to afford the necessary expenditure from 2027 if the planned rules were adhered to. According to the report, investments would also be severely inhibited in Germany. The Greens in the European Parliament are therefore also very critical of the reform. It does not meet the needs of the times, said MEP Henrike Hahn.
Federal Finance Minister Christian Lindner, on the other hand, is satisfied. Germany's central concern - "fiscal stability" - is reflected in the legal texts, the FDP politician said recently. "We are getting clear rules for debt reduction, which can then also be implemented with a realistic perspective." The Christian Democratic EPP group in the European Parliament also spoke out in favor of the reform. The new set of rules creates more clarity and puts the economic and monetary union on a solid foundation, said economic policy spokesperson Markus Ferber (CSU).
What happens next
It should be possible to reopen the deficit procedures from this spring - the new rules are likely to apply by then. According to the latest data from the EU statistics office Eurostat, several countries broke the ceilings last year.
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