A new marathon negotiation, which ended at two in the morning this Saturday, has allowed the EU to close one of the key files for the end of the legislature: the new fiscal rules that will govern the economic discipline of the 27 from now. The fiscal corset was annulled by the pandemic, when the governments’ priority was expansive spending to get out of the crisis. The suspension of the Stability and Growth Pact was later maintained when war broke out in Ukraine to address the economic and social consequences on the continent, such as inflation and the energy crisis.
The 27 decided to end the open bar in 2024, but there was also a certain consensus that the current rules were not valid. The objectives remain the same: to have a maximum debt of 60% and a deficit of 3% compared to GDP. What changes is the way in which you reach them. The previous fiscal rules were, in practice, unaffordable and unattainable.
The new system will be based on adjustment plans based on annual spending that each country will design and agree with the European Commission for four years, but which may be extended to seven if it is justified that there are important reforms and investments with respect to priorities of the EU as the ecological or digital transition. The measures adopted in these matters and defense will be taken into account when studying the opening of excessive deficit files for non-compliant parties. The plans may be reviewed “if there are objective circumstances that prevent their application” and also if there is a change of government.
Throughout the negotiation, a series of safeguards have been introduced that substantially constrict the margin, as demanded by countries such as Germany and the frugal ones. Brussels gave in on the initial proposal by proposing a deficit reduction of 0.5% per year for all member states that are above the threshold and then governments introduced a minimum debt reduction of 0.5% when they are above of 60% and 1% if it exceeds 90%. The Government’s estimate is that Spain is at 108.1%. In the final stretch of the negotiation, the 27 also included that countries with less than 3% deficit should aim to lower it to 1.5% to have a cushion for future crises. That was one of the last elements that Germany demanded.
“A country with excess debt would not be obliged to reduce it below 60% at the end of the period of years covered by the plan. At the end of the agreed period, the country must have a debt that is considered to be on a plausible downward trajectory,” says the European Parliament in a statement on the agreement, which also explains that the Council may allow a member state to deviate from the spending path. when exceptional circumstances beyond its control cause a significant impact on its public finances.” “A deadline for such a deviation would be specified, but this period may be extended if exceptional circumstances persist. The extension would be for a maximum of one year and could be granted more than once,” the statement states.
“I particularly welcome the fact that the final agreement improves the text agreed in the Council last December, including by further protecting public investment and reinforcing the social dimension of the framework,” Economy Commissioner Paolo Gentiloni said in a statement. , from the social democratic family, which recognizes that the approved texts are “more complex” than those initially proposed by Brussels, but celebrates that they preserve the “central elements”: “More medium-term planning; greater involvement by Member States within a common framework; a more gradual fiscal adjustment to reflect investment and reform commitments.”
Although fiscal discipline will once again govern the EU economy, the rules are more affordable than those that applied, for example, during the financial crisis. The previous framework established that one-twentieth of the debt had to be reduced per year, which would mean financial suffocation for the most indebted countries, such as Spain. Furthermore, the sanctioning system was so rigid that it was never applied (with sanctions of 0.2% of GDP). Now it will be 0.05% every six months.
The negotiation within the 27 was very tough and the Council arrived at the talks with the Parliament and the European Commission with little room for manoeuvre. This week the appointments have intensified and this Friday they have lasted throughout the day and in the final stretch the flexibility for social spending has been addressed, which was one of the demands of the European Parliament. “The Commission will measure both the application of the principles of the European Pillar of Social Rights and the risks to social convergence. Member States will have to ensure that their national plan also contributes to social objectives. Furthermore, the cyclical elements of spending on unemployment benefits will not be taken into account when calculating a government’s spending,” notes the European Parliament.
What sources from the negotiations highlight is that the atmosphere has been “constructive” because all parties were aware that they had to close the agreement this week to reach ratification by the Council and the European Parliament in time before the legislature ends in April. The rule will come into force after being published in the official journal of the EU and the first adjustment plans will have to be presented in September 2025.
Source: www.eldiario.es
