by Foo Yun Chee
BRUSSELS (Reuters) – Negotiators from the Twenty-Seven and the European Parliament reached a preliminary agreement on Saturday aimed at easing the European Union’s budgetary rules, giving governments more time to reduce their debt to boost public investment in the areas of climate, industrial policy and security.
This overhaul of the two-decade-old rules, known as the Stability and Growth Pact, comes as some EU countries have racked up record debt to support their economies during the COVID-19 pandemic, and as where the Twenty-Seven have set high ambitions in terms of energy transition, reindustrialization and defense.
The new rules set minimum targets for reducing the budget deficit and debt, but these are less ambitious than the previous ones.
“At a time of significant economic and geopolitical challenges, the new rules will enable us to confront today’s realities and give EU member states clarity and predictability on their budgetary policies for the years to come. come,” European Commission Vice-President Valdis Dombrovskis said in a statement.
“These rules will improve the sustainability of public finances and promote sustainable growth by encouraging investments and reforms,” he added.
The revised rules allow countries to reduce their debt by an average of 1% per year if it is above 90% of gross domestic product (GDP), and by 0.5% per year on average if the debt is between 60% and 90% of GDP.
Countries with a deficit greater than 3% of GDP are required to reduce this deficit by half during periods of growth, in order to be better equipped to face periods of crisis.
Defense spending will be taken into account when the Commission assesses a country’s high deficit, with special attention warranted by Russia’s invasion of Ukraine.
The new rules give countries seven years, up from four, to reduce their debt and deficit from 2025.
But a Member State whose debt is excessive will no longer be forced to reduce it below 60% at the end of the seven-year period as long as it demonstrates that it has adopted a virtuous trajectory.
The Twenty-Seven and the European Parliament must still formally approve this preliminary agreement so that it can enter into force next year.
(Reporting by Foo Yun Chee, French version Tangi Salaün)
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