The ongoing reform of the European Union’s fiscal rules marks a new direction after Germany and the Netherlands submitted their demands for minimum debt reduction targets, directly challenging the European Commission’s approach based on bespoke national plans. I chanted
EU law requires countries to keep fiscal deficits below 3% of gross domestic product (GDP) and public debt below 60% of GDP, mitigating the impact of the COVID-19 pandemic Many countries have crossed that threshold as a result of years of intensive spending to , Russian war and energy crisis in Ukraine.
The European Commission has taken the first steps to amend the current framework, arguing that this new economic reality justifies reforming the bloc’s fiscal rules.
in a published report last Novemberthe Committee proposed leaving both the 3% and 60% targets in place, but adding greater flexibility to allow governments to adapt the targets to their particular circumstances. To do.
Under the plan, EU member states will negotiate their own national blueprints with Brussels to curb their budget deficits and gradually reduce their debt over four years.
Heavily indebted countries like Greece and Italy could be given another three years to adjust their finances and return to ‘prudent’ fiscal policies.
In a notable change, the norm that imposed a uniform 1/20 debt reduction rate will be abolished and replaced with its own method. The norm has been criticized for exacerbating the economic crisis, which has taken a painful toll.
However, Germany and the Netherlands, known for advocating fiscal easing, disagreed with this approach and are now demanding minimum targets for debtor countries.
In a non-paper seen by Euronews, Germany argues for uniform rules that would guarantee a “substantial” reduction in debt levels.
This “common safeguard” would force countries with debt ratios above 60% of GDP to reduce their debt levels by at least 0.5% per year.
German documents say countries far above that threshold must reduce their debt by at least 1% per year.
“The Committee’s current thinking should be revised so that the medium-term fiscal plan leads to a (sufficient) reduction in the high annual debt ratio… achieved on an annual basis,” said the nonpaper.
Germany is also proposing “simple and transparent” rules for controlling public spending and provisions to automatically initiate a new reform process if high debt persists.
“If the reformed framework does not achieve a reduction in the debt ratio, it must be revised after a period of up to four years,” the non-paper said.
Days after the German documents were leaked to the press, Dutch Finance Minister Sigrid Kaag backed the idea of a “common numerical benchmark” to prevent country-by-country plans from becoming “unique”.
“We believe it is very important that there is diversification and room for reform and investment, but of course debt reduction needs to be tangible and measurable,” Kaag said. financial times.
“We want sufficient debt relief.”
But Kaag did not specify an annual rate, as Germany did in the non-paper.
Euronews has reached out to the Dutch Ministry of Finance for more information.
European Commission spokesperson Veerle Nuyts said in response to the statement that Brussels would release a legislative proposal “within the next few weeks” to advance the political debate, although the proposal was put forward by Germany and the Netherlands. He declined to say whether it would feature a set minimum target.
“The ultimate aim is to ensure broad consensus on this important topic,” Nuyts said, noting continued engagement with the government on “outstanding issues.”
she also said Conclusion The committee’s work was provided with a “solid foundation” from last month’s meeting of Economy and Finance Ministers, including a reference to “the adequacy and design of common quantitative benchmarks”.
Brussels is determined to complete the reform process by the end of the year and introduce new fiscal rules by January 2024. This is an ambitious goal also shared by Member States.
The new framework is expected to take into account the huge financial commitments needed to accelerate the EU’s green and digital transition, with additional investments expected to cost €650 billion annually by 2030. Estimated.
EU countries have been debating in recent months how to strike a balance between strong investment and sustainable debt reduction, with no clear answer in sight.
On the other hand, the Commission I decided Defer fines for non-compliant countries until next year.
At the end of Q3 2022, government debt amounted to 93% of GDP in the Eurozone and 85.1% in the EU. Greece was the highest at 178.2%, followed by Italy at 147.3%.
According to Eurostat, Germany’s debt was 66.6% of GDP during the same period, compared to 49% of Dutch debt.