10th Dec 2023

Frugals on top in new EU proposal on debt rules

  • Vice president Valdis Dombrovkis said countries would have "no excuse for failing to deliver" under the new proposal (Photo: European Commission)
Listen to article

The EU Commission's proposed new debt rules give capitals more power over their own spending, but still envisage tough fines for profligates.

That was the gist of ideas for a more flexible approach to debt put forward on Wednesday (26 April).

Read and decide

Join EUobserver today

Become an expert on Europe

Get instant access to all articles — and 20 years of archives. 14-day free trial.

... or subscribe as a group

The changes would give member states more "ownership" of the regime, which should lead to "greater compliance," commission vice president Valdis Dombrovkis said in Brussels.

"It is under [member state] control, so there are no excuses for failing to deliver," he added.

The goal is still for countries to reduce debt to 60 percent of GDP and keep deficits below 3 percent, but under the new model the commission and member states in breach of these limits would negotiate debt-reduction plans.

These plans would need approval of the commission and other EU members, and if approved by all, would commit governments to reduce debt by 0.5 percent of GDP within four years.

In a demand made by Germany, who has pushed for stricter rules, the debt-reduction plans wouldn't need any extra commission action on top, such as an 'excessive deficit procedure', in order to enter into force.

Atomic option no more

According to economy commissioner Paolo Gentiloni, the new proposal is "qualitatively different" from how fiscal governance was arranged before.

"Now, the governments themselves are responsible for the plans and [the plans] are for the longer term," he said.

This made the system seem less like Brussels' diktat and increased the sense of "ownership," Gentiloni added, also using the commission's word du jour on Wednesday.

The proposal is different from existing rules, which were suspended in 2020, when governments needed financial space to deal with the Covid-19 pandemic, and, more broadly, because the rules were already deemed ineffective.

Those 'one-size-fits-all' rules obliged all countries to reduce debt by 5 percent yearly — 10 times more than current proposed rules.

Sanctions amounted to 0.1 percent of GDP — an "atomic option which is why it was never used," one EU official, who spoke anonymously, told EUobserver.

This is where the new system differs most "radically," they said.

Now, the commission proposes a fine of 0.05 percent if a country is in breach of its agreement, which can gradually increase to 0.5 percent of GDP "if no action is taken," said the official.

Germany strikes back

In many ways, the latest commission proposal is similar to a draft version floated in November last year, but following strong pushback from Germany's liberal finance minister Christian Lindner, concessions were made to strengthen fines and debt-reduction benchmarks.

Managing director of the Eurasia Group Mujtaba Rahman also suggested EU Commission president Ursula von der Leyen may have moved more to the German position because she needs Germany on her side if she "wants to win a second mandate" for commission president next year.

The new fines proposal will make for tough negotiations with France, Spain, Italy, and Belgium, who are in breach of deficit rules and would need to cut spending significantly.

But Lindner, in a statement, said current rules are not strict enough: "We work constructively, but no one should be under the misunderstanding that Germany will automatically consent to the proposals."

"The Germans are staking out a tough negotiating position, which isn't too bad for us as it moves the needle slightly more to where we want to have it," one EU diplomat representing a frugal country also told EUobserver.

"But this is only the start of a very technical phase of the legal negotiations. So I think it's safe to say it will take some time to hammer out a deal," they added.

A final agreement is expected before the end of the current commission's term, "at the latest possible moment" next year.

Looser EU fiscal rules agreed, with 'country-specific' flexibility

EU finance ministers agreed on new spending rules, copying much of previously existing rules. One worry is that only three countries — Sweden, Denmark and Luxembourg — could currently afford to meet green commitments while meeting debt and deficit rules.

Germany pushes 'one-size-fits-all' EU spending rules

In a non-paper to the EU Commission, Germany pushed for one-size-fits-all fiscal rules that limit government spending to a "common benchmark" — which experts warn could limit EU green investments.

EU finance ministers meet for tough clash on spending rules

EU finance ministers meet in Stockholm to negotiate new spending rules, with frugal Germany expected to clash with France and Italy. Meanwhile the proposal has been criticised by economists for not leaving enough room for climate investment.

Polish truck protest at Ukraine border disrupts war supplies

Disruption at the Polish-Ukrainian border by disaffected Polish truckers is escalating, potentially affecting delivery of military aid to Ukraine. A Polish request to reintroduce permits for Ukrainian drivers has been described as "a shot to the head" during war.


Tusk's difficult in-tray on Poland's judicial independence

What is obvious is that PiS put in place a set of interlocking safeguards for itself which, even after their political defeat in Poland, will render it very difficult for the new government to restore the rule of law.


Can Green Deal survive the 2024 European election?

Six months ahead of the EU elections, knocking an 'elitist' climate agenda is looking like a vote-winner to some. Saving the Green Deal and the EU's climate ambitions starts with listening to Europeans who are struggling to make ends meet.

Latest News

  1. How Moldova is trying to control tuberculosis
  2. Many problems to solve in Dubai — honesty about them is good
  3. Sudanese fleeing violence find no haven in Egypt or EU
  4. How should EU reform the humanitarian aid system?
  5. EU suggests visa-bans on Israeli settlers, following US example
  6. EU ministers prepare for all-night fiscal debate
  7. Spain's Nadia Calviño backed to be EIB's first female chief
  8. Is there hope for the EU and eurozone?

Stakeholders' Highlights

  1. Nordic Council of MinistersJoin the Nordic Food Systems Takeover at COP28
  2. Nordic Council of MinistersHow women and men are affected differently by climate policy
  3. Nordic Council of MinistersArtist Jessie Kleemann at Nordic pavilion during UN climate summit COP28
  4. Nordic Council of MinistersCOP28: Gathering Nordic and global experts to put food and health on the agenda
  5. Friedrich Naumann FoundationPoems of Liberty – Call for Submission “Human Rights in Inhume War”: 250€ honorary fee for selected poems
  6. World BankWorld Bank report: How to create a future where the rewards of technology benefit all levels of society?

Stakeholders' Highlights

  1. Georgia Ministry of Foreign AffairsThis autumn Europalia arts festival is all about GEORGIA!
  2. UNOPSFostering health system resilience in fragile and conflict-affected countries
  3. European Citizen's InitiativeThe European Commission launches the ‘ImagineEU’ competition for secondary school students in the EU.
  4. Nordic Council of MinistersThe Nordic Region is stepping up its efforts to reduce food waste
  5. UNOPSUNOPS begins works under EU-funded project to repair schools in Ukraine
  6. Georgia Ministry of Foreign AffairsGeorgia effectively prevents sanctions evasion against Russia – confirm EU, UK, USA

Join EUobserver

Support quality EU news

Join us