EU | The EU is starting to return to the guidance of the economic policy of the member states, the growth and stability agreement rules were violated

Brussels

EU Commission announced on Wednesday the expected bills on how the economic policy of the member countries will be guided in the future.

Commissioners Valdis Dombrovskis and Paolo Gentiloni reported the commission’s preliminary thoughts last November, after which they have consulted member countries and modified the bill. The principle of the reform was to simplify the rules, but to enhance supervision and guidance.

There is an exception clause in the stability and growth agreement that guides economic policy, based on which the guidance has been put on the shelf due to the corona pandemic until the end of this year. The reform presented now is scheduled to enter into force at the beginning of next year, which requires a fast pace of processing both among the member states and in the EU Parliament.

The Commission plans discussions on preliminary plans with the member countries for early 2024.

The old ones reference values ​​remain unchanged. The budget deficit may not exceed three percent of the gross domestic product (GDP) and the public debt may not exceed 60 percent in relation to GDP.

The Commission prepares a country-specific “technical development path” for those member countries whose deficit or debt exceed the limit values.

In the medium term, the debt must be reduced credibly or remain at a moderate level. The deficit must remain below three percent in relation to GDP, or it must be brought down to that level and remain there.

In some countries, the public debt is largely over one hundred percent in relation to GDP, for example in Italy 140 percent. The purpose is that the debt would be reduced at a more realistic pace than in the previous growth and stability agreement. The Commission would agree with the member country on a more country-specific reduction rate than the current one.

On the other hand, during the consultation round, some of the member countries, Germany in the lead, wanted guarantees that there would be enough pressure on the indebted countries to reduce the debt.

The Commission now proposes that as long as the country’s budget deficit exceeds three percent of GDP, the debt should be reduced by a minimum of 0.5 percent per year relative to GDP.

Member countries make the national medium-term fiscal and structural policy plans. Their time span is four years, and the countries must state in them what their public finance goals are, how they intend to correct possible imbalances, and what reforms and investments are coming.

If necessary, the time can be extended to seven years on the condition that the country also makes reforms.

The Commission evaluates the plans and the Council approves them based on common EU criteria. The approach is the same as in the recovery plans approved after the corona pandemic.