4th Mar 2024

EU Commission extends borrowing curbs in 2023

  • "We are not proposing a return to unlimited spending," Paolo Gentillioni said on Monday (Photo: European Union, 2022)
Listen to article

The EU Commission on Monday (23 May) proposed to keep curbs on government spending suspended in 2023 — extending an earlier deadline for returning to tight fiscal rules by a year.

"We are not proposing a return to unlimited spending," economy commissioner Paolo Gentillioni said at a press conference.

Read and decide

Join EUobserver today

Get the EU news that really matters

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

... or subscribe as a group

EU debt rules limit member countries from running a deficit upwards of three percent and limit the debt to GDP-ratio to 60 percent.

The EU suspended tight fiscal rules at the start of the pandemic, which have been under heavy criticism for their inflexibility during the eurocrisis, to allow governments to offset the economic fallout of Covid-19.

But the EU faces a "mountain of investment" in the transition to a digitised green economy that is not reliant on Russian gas imports and needs more private and public spending to recover from the pandemic.

To support an economy that faces "high uncertainty and strong downside risks," Gentillioni said, member countries should implement already-approved pandemic recovery measures as soon as possible.

"We need to invest €520bn a year until 2030 in the green transition alone," he said.

A further €210bn is earmarked for the commission's RePowerEU strategy to quit Russian gas by 2027, which member states can pay for out of the €225bn in loans still available under the EU's €750bn recovery and resilience facility.

While the commission highlighted more investment, the commission's vice-president Valdis Dombrovskis also signalled that individual member states should move towards more "prudent" expenditure.

"Since growth remains positive and inflation high, a broad-based impulse to the economy does not appear to be warranted," he said.

Instead, spending should be "targeted" at green transition and strategic autonomy, he said.

The commission has kicked off on how to reform the bloc's fiscal rules twice already, but the debate has been postponed once because of the pandemic and now because of the Russian invasion of Ukraine.

According to Dombrovskis, a fresh debate is expected to start "in a couple of months", but he added that the commission reserves the right to suspend so-called excessive deficit procedures to limit countries' indebtedness for the next year, with 17 countries currently in breach of debt-deficit criteria.

Monetary tightening

In a blog post on Monday, European Central Bank president Christine Lagarde wrote that the eurozone will likely "exit negative interest rates by the end of the third quarter."

This will increase the cost of government borrowing, with investors in government bonds already charging higher interest rates across the bloc.

With real rates rising, the cost of the "mountain of investments" governments are expected to make in the coming months will increase.

"Households are the ones suffering most," Lagarde wrote.

Real wages have been on the decline for the last two quarters and are expected to contract "even faster" during the rest of this year.

"Some countries may enter a technical recession for a few quarters, but this is not the general assessment for the EU economy [as a whole]," Gentilioni said.

On Sunday, German finance minister Christian Lindner urged the EU to rein in public spending ahead of Monday's Eurogroup meeting.

But economists warned against austerity measures on the cusp of a recession.

"What could…go wrong given the current economic downturn and fiscal needs to compensate for rising inflation? Have we learned [so] little from the economic and political experience with austerity since 2010," economist Phillipp Heimberger tweeted on Monday.


Can the ECB solve climate change and inflation on its own?

The European Central Bank operates independently - with good reason - but in cases like climate policy more coordination with democratic authorities are needed, two influential economists have argued.

EU re-launches mammoth fiscal debates

The EU Commission has restarted its effort to rewrite European fiscal rules, but some countries, such as Italy, are off the charts on debt in terms of an existing pact.


An inflation surge, but (some) economists warn on raising rates

Rising prices have fuelled the debate among economists about inflation risk - with some arguing that central banks should increase interest rates, while others urge governments and central banks to adopt more precise and targeted measures.

EU supply chain law fails, with 14 states failing to back it

Member states failed on Wednesday to agree to the EU's long-awaited Corporate Sustainable Due Diligence Directive, after 13 EU ambassadors declared abstention and one, Sweden, expressed opposition (there was no formal vote), EUobserver has learned.


The six-hour U-turn that saw the EU vote for austerity

The EU's own analysis has made it clear this is economic self-sabotage, and it's politically foolish three months from European elections where the far-right are predicted to increase support, writes the general secretary of the European Trade Union Confederation.


Why are the banking lobby afraid of a digital euro?

Europeans deserve a digital euro that transcends the narrow interests of the banking lobby and embodies the promise of a fairer and more competitive monetary and financial landscape.

Latest News

  1. EU must overhaul Africa trade offer to parry China, warns MEP
  2. EU watchdog faults European Commission over Libya
  3. Hungary's Ukrainian refugees in two minds as relations sour
  4. The six-hour U-turn that saw the EU vote for austerity
  5. Defence, von der Leyen, women's rights, in focus This WEEK
  6. The farming lobby vs Europe's wolves
  7. EU socialists fight battle on two fronts in election campaign
  8. EU docks €32m in funding to UN Gaza agency pending audit

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

EU news that matters

Join us