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The updated rules should clean up unhealthy state finances in EU countries

The updated rules should clean up unhealthy state finances in EU countries

In the Stability and Growth Pact, which is supposed to ensure that member states have healthy public finances, the EU has a series of rules to ensure that overall targets for public debt are no more than 60 percent of GDP and budget deficits are no more than 3 percent of GDP. gross domestic product. However, the rules have long been criticized for being too complex, rigid and stifling investment.

In April of last year Therefore, the European Union Commission submitted a proposal On how to simplify the rules and make them more effective.

Since then, EU lawmakers, Parliament and Council of Ministers member states have negotiated what the law should look like. Last Saturday night, they reached a tentative agreement.

– [De nya reglerna] Belgian Finance Minister Vincent Van Petegem, who negotiated on behalf of member states, said in a statement that the agreement will ensure balanced and sustainable public finances, strengthen the focus on structural reforms and encourage investment, growth and new jobs across the European Union.

For the European Parliament, Portuguese social democrat Margarida Márquez was one of the two main negotiators.

– Marquez said – The new rules will provide more space for investment and flexibility for member states to facilitate their amendments and will enhance the social dimension.

The agreement does not change the constitutional limits on the size of the national debt, a maximum of 60% of GDP, and the budget deficit, a maximum of 3% of GDP, in member states, but it establishes new methods for reducing them. Debts. The main line is to reduce government debt in a more gradual, realistic and stable manner, balanced with greater opportunities for investment in important areas.

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However, the left-wing group in the European Parliament criticized this settlement.

The negotiations resulted in stricter deficit rules, more restrictive control over public spending for member states, and no guarantees for public investment. José Gusmão, a Portuguese communist, said austerity had returned.

Reducing the national debt

For countries whose national debt exceeds 90 percent of GDP, it must be reduced at a rate of no less than one percent annually. For countries with national debt between 60 and 90 percent, the average must be at least 0.5 percent per year. Both of these requirements are less stringent than the current regulatory framework. Today, the national debt of half of the European Union countries exceeds 60%.

Reducing the deficit

For European Union countries that suffer from budget deficits exceeding the three percent limit, this deficit must be reduced to 1.5 percent during periods of economic growth in order to build a buffer for future crises.

Multi-year debt restructuring plans

For those countries that do not meet EU budget limits, the Commission will issue technical roadmaps outlining ways to reduce debt and deficits.

All Member States must submit a multi-year plan that includes fiscal policy, investments and reforms to the Commission. The plans could be updated if a new government takes power.

Countries themselves can decide how to reduce the level of debt – but it must be lower at the end of the period than it was at the beginning of the four-year period. If a country includes in its plan reforms that in the long term will strengthen the country's finances, create growth, or contribute to common EU priorities such as climate, social issues, digitalization and defence, it will be able to have more time to achieve its debt reduction goals. .

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Countries can, in “exceptional circumstances” beyond their control, request an extension of their debt restructuring plan.

simplification

The simplification of the regulations on the settlement is that only one indicator will be used as a measure of debt sustainability: the so-called net nationally financed primary expenditure (see fact box).

It will be applied to the 2025 budget

The initial settlement reached at the weekend must now be formally approved by the EU Parliament and member states. The aim is to submit the first national plans no later than 20 September 2024 and link them to the 2025 budgets. The Commission's examination of the budget plans is part of the so-called European planning chapter.