After sixteen hours of negotiations (on the last day), the negotiators of the Council and the European Parliament reached a political agreement on the proposal to reform the EU economic governance framework. The main objective of the new Stability and Growth Pact – explains the Council – is to guarantee healthy and sustainable public finances, while promoting sustainable and inclusive growth in all member states through reforms and investments. The Council and Parliament agreed to maintain the reform's overall objective of reducing debt ratios and deficits in a gradual, realistic, sustainable and growth-friendly way, while protecting reforms and investments in strategic sectors such as digital, green, social or defense. At the same time, the new framework will provide adequate space for countercyclical policies and address macroeconomic imbalances. The agreement also maintains the obligation for Member States to submit medium-term national fiscal structural plans. The Commission will present a “reference trajectory” (the so-called “technical trajectory”) to Member States where public debt exceeds 60% of GDP or where the public deficit exceeds 3% of GDP. The agreement provides for an optional and factual preliminary dialogue between Member States and the Commission in advance. The reference trajectory indicates how Member States can ensure that by the end of a four-year fiscal adjustment period public debt is on a plausibly downward trajectory or remains at prudent levels in the medium term. The agreement contains two guarantees that the reference trajectory must respect, the safeguarding of debt sustainability, to guarantee a decrease in debt levels and the safeguarding of the resilience of the deficit, to provide a safety margin below the value of treaty deficit reference of 3% of GDP, in order to create fiscal space. Based on the reference trajectory, Member States then incorporate the fiscal adjustment path, expressed as net expenditure paths, into their medium-term national fiscal structural plans. Plans, including net spending pathways, must therefore be approved by the Council. The agreement provides for deviations from country-specific net spending paths. The new rules will further encourage structural reforms and public investments 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 carry out certain reforms and investments that improve resilience and growth potential and support fiscal sustainability and address priorities municipalities in the EU. These include achieving a fair, green and digital transition, ensuring energy security, strengthening social and economic resilience and, where necessary, building defense capabilities. The political agreement reached on the preventive arm of the economic governance framework is subject to approval by the Council in Coreper and by Parliament's Economic Affairs Committee before going through a formal vote in both the Council and Parliament. Once adopted, the text will be published in the Official Journal of the EU and will enter into force the following day. The Regulation on the corrective arm and the Directive on requirements for Member States' fiscal frameworks require only consultation of the European Parliament. The objective is to adopt them within the Council at the same time as the preventive arm.
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