Tuesday

6th Jun 2023

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

  • Economy commissioner Paolo Gentiloni stressed the rules should be fit for 'new realities' (Photo: European Commission)
Listen to article

EU finance ministers on Tuesday (14 March) agreed on new European debt and deficit rules. Economy commissioner Paolo Gentiolni ahead of the meeting had stressed the new rules would need to take into account "new realities" such as the energy crisis.

The measures ministers agreed on copied much of the previously existing rules deactivated by the EU Commission at the start of 2020 for being too strict to deal with the Covid-19 crisis. Crucially the three-percent deficit limit remains intact, and debt should remain limited to 60 percent of gross domestic product.

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 big difference is that debt reduction will now be made "country-specific" and allow for more flexibility. Finance ministers want to ditch the one-size-fits-all rule, requiring all debt above 60 percent of GDP to be reduced by five-percent annually.

Instead, countries and the EU Commission will negotiate a debt-reduction plan based on the economic situation, which should also cover "reforms and investment."

An added backstop is that debt reduction should start within four to seven years. There is also some language on minimal debt-reduction levels, a point pushed for by Germany and the Netherlands, but no details have been presented on this yet.

Long negotiations ahead

The proposal mostly follows an earlier commission proposal from November last year. But an agreement of ministers was necessary to get approval from EU leaders at their top-level summit next week. Only then the EU Commission can make an official legislative proposal in April. The hope is this leaves enough time for countries to then finally agree on a definitive set of rules before elections in spring of 2024.

Although plans were able to proceed, deep disagreements between member states remain. German finance minister Christian Lindner especially has been vocal in pushing hard for rules and enforcement to be as strict as possible. Once fiscal rules are reactivated, it is "the law", and "we demand states do business as the law requires of them," Lindner said on Monday, ahead of the two days of negotiations.

Especially the Nordic member states, the Netherlands and Germany, prefer for debt and deficit rules to be defined by common denominators as much as possible. But it remains an open question how strictly common rules can be imposed.

The EU economy is still in "uncertain" and "volatile" waters," said Gentiloni. One of the realities the rules need to deal with is an ongoing energy crisis. The disruption caused by the Russian invasion of Ukraine and the ensuing energy crisis has strained public coffers. High energy bills and inflation forced member states to adopt income support measures estimated by the commission to cost up to two percent of GDP in 2023.

Another reality is not all EU member states are equally up to the task.

Green spending

A recent analysis made at the commission's request found that only three member states (Sweden, Denmark and Luxembourg) would be able to make the minimal amount of investments to achieve emission reduction targets (estimated at 1.1 percent of GDP) while meeting proposed debt and deficit limits.

All other members would need to cut public spending elsewhere, opening up the possibility of a new form of 'green austerity.'

The economist Paul van den Noord, who authored the commission research, noted that Italy would face a "Herculean" task to reduce debt and deficits while achieving its required investment targets.

EU green funds could help poorer members bridge this gap. But EU funds in practice often flow towards affluent regions with the human capacity to write investable plans, while poorer provinces see their plans more often rejected.

Combined with strict enforcement of common fiscal rules, this could compound existing problems of inequality within the EU. "Italy, France and Greece would face far more restrictions under the proposed rules than Germany, Sweden and Austria," said Sebastian Mang, senior campaigner at the British think-tank New Economic Foundation.

Instead, "the EU should focus more on ensuring all member states can plug the green spending gap," he said.

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.

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.

Analysis

Final steps for EU's due diligence on supply chains law

Final negotiations on the EU due diligence law begin this week. But will this law make companies embed due diligence requirements in their internal processes or incentive them to outsource their obligations to third parties?

Latest News

  1. Final steps for EU's due diligence on supply chains law
  2. Top EU court rules Poland's court reforms 'infringe law'
  3. Sweden's far-right is most anti-Green Deal party in EU
  4. Strengthening recovery, resilience and democracy in regions, cities and villages
  5. Why Hungary cannot be permitted to hold EU presidency
  6. Subcontracting rules allow firms to bypass EU labour rights
  7. Asylum and SLAPP positions in focus This WEEK
  8. Spanish PM to delay EU presidency speech due to snap election

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