The 27 will recover next year the Stability Pact that was suspended with the outbreak of the pandemic so that governments could face the crisis with unprecedented increases in public spending. Now it will be time to tighten our belts, but with more flexible rules than those that have been in force up to now and that were in force during the financial crisis of the past decade. Brussels has proposed an ‘à la carte’ system so that the member states reach the maximum objectives of 3% of the deficit and 60% of public debt in which the European Commission will negotiate individually with the adjustment plans. The idea is to reinforce the system of sanctions, which in the past was never applied, so that countries that do not comply with these trajectories receive more affordable fines through a gradual model.

The 27 want to approve the fiscal rules this year despite the reluctance of Germany


“Our proposals allow for more credible accountability as a counterpart to a supervision framework that gives member states more flexibility to design their fiscal paths”, summarized the Commissioner for the Economy, Paolo Gentiloni, at the press conference in which has presented the proposal for the new EU tax framework.

There will no longer be common obligations but “simpler rules that take into account the differences of the member states”, according to community sources. The European Commission will sit down with the countries to establish “technical trajectories” that lead to meeting the deficit and debt targets. Until the suspension of fiscal rules in 2020, those who were above 3% of the deficit and 60% of debt had to reduce it by one twentieth every year. This could mean financial suffocation for some countries, such as Greece, Italy, Spain or France, which have high ratios.

Annual adjustment of 0.5% of the deficit

The debt of thirteen member states exceeds the 60% of GDP that the EU sets as a ceiling and the situation is especially triggered in Greece (171.3%), Italy (144.4%), Portugal (113.9%), Spain (113.2%), France (111.6%) and Belgium (105.1%). Eleven member states had an excessive deficit in 2022. The largest mismatches were recorded in Italy (8%), Hungary and Romania (6.2%) and Malta (5.8%). Spain occupies the fifth position with 4.8% below what was initially forecast by the Government. The drop was substantial given that the previous year it stood at 6.9%.

Germany, which has raised the pressure in recent weeks because it is reluctant towards unilateral negotiation between the Commission and the states, wanted excessive debt to have to be reduced by at least 1% each year. But that approach has not been assumed by the community government. What the Commission proposal does include is a fiscal adjustment of 0.5% per year for those countries with a deficit of more than 3%.

Germany’s reluctance

The states will present the Commission with four-year adjustment plans -which can be extended up to seven if there are reforms and investments that meet the EU’s “priorities”, which range from fiscal stability to issues such as ecological or digital transitions- . One of the rules is that the “adjustment effort is not postponed until the final years of the period” but rather that it be “proportional” throughout the entire period. With this clause, he intends to prevent hypothetical cuts from being left until after the elections, for example. Another condition is that public spending may not grow more than the economic growth forecast.

However, the proposal does not give total freedom to the negotiation of the Commission and the member states, which is one of the suspicions that the toughest countries have, such as Germany, since the plans have to be endorsed by the Council of the EU. in which the 27 sit.

Fines every six months up to 0.5% of GDP

In exchange for giving countries greater flexibility to reduce excess deficit and debt, the European Commission introduces a system of sanctions that, a priori, is more acceptable than the previous one, whose level of demand meant that it was never applied, despite the fact that the procedure was opened to Spain and Portugal in 2016. Countries that fail to comply with the agreed stability paths will have a fine of 0.05% of their GDP every six months that will accumulate up to a maximum of 0.5 %. In the Spanish case, it would mean around 660 million euros every half year up to a maximum of 6,600.

What the executive vice-president of the European Commission, Valdis Dombrovskis, has explained is that the excessive deficit procedures will be opened when the countries do not meet the established trajectories, but that it can also be done “by default” in the case of countries with “challenges substantial debt.

The negotiation of the Stability Pact will be one of the battles in the EU in the coming months and it will be up to Spain, as rotating presidency, to lead the negotiations. The 27 have been summoned to have an agreement -which the European Parliament will also have to endorse- before the end of the year so that the fiscal rules are operational in 2024, which is the date that the member states have given themselves to recover fiscal orthodoxy.


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