4th Jun 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.


What a Spanish novelist can teach us about communality

In a world where cultural clashes and sectarianism seems to be on the increase, Spanish novelist Javier Cercas (b.1962) takes the opposite approach. He cherishes both life in the big city and in the countryside.


Poland and Hungary's ugly divorce over Ukraine

What started in 2015 as a 'friends-with-benefits' relationship between Viktor Orbán and Jarosław Kaczyński, for Hungary and Poland, is ending in disgust and enmity — which will not be overcome until both leaders leave.

Latest News

  1. Spanish PM to delay EU presidency speech due to snap election
  2. EU data protection chief launches Frontex investigation
  3. Madrid steps up bid to host EU anti-money laundering hub
  4. How EU leaders should deal with Chinese government repression
  5. MEPs pile on pressure for EU to delay Hungary's presidency
  6. IEA: World 'comfortably' on track for renewables target
  7. Europe's TV union wooing Lavrov for splashy interview
  8. ECB: eurozone home prices could see 'disorderly' fall

Stakeholders' Highlights

  1. International Sustainable Finance CentreJoin CEE Sustainable Finance Summit, 15 – 19 May 2023, high-level event for finance & business
  2. ICLEISeven actionable measures to make food procurement in Europe more sustainable
  3. World BankWorld Bank Report Highlights Role of Human Development for a Successful Green Transition in Europe
  4. Nordic Council of MinistersNordic summit to step up the fight against food loss and waste
  5. Nordic Council of MinistersThink-tank: Strengthen co-operation around tech giants’ influence in the Nordics
  6. EFBWWEFBWW calls for the EC to stop exploitation in subcontracting chains

Stakeholders' Highlights

  1. InformaConnecting Expert Industry-Leaders, Top Suppliers, and Inquiring Buyers all in one space - visit Battery Show Europe.
  2. EFBWWEFBWW and FIEC do not agree to any exemptions to mandatory prior notifications in construction
  3. Nordic Council of MinistersNordic and Baltic ways to prevent gender-based violence
  4. Nordic Council of MinistersCSW67: Economic gender equality now! Nordic ways to close the pension gap
  5. Nordic Council of MinistersCSW67: Pushing back the push-back - Nordic solutions to online gender-based violence
  6. Nordic Council of MinistersCSW67: The Nordics are ready to push for gender equality

Join EUobserver

Support quality EU news

Join us