Reform of the Stability Pact
Agreement reached on new EU debt rules
February 10, 2024, 3:15 a.m
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During the Corona crisis, the EU is suspending the stability pact, which limits members’ debts. Now comes a reform that gives highly indebted countries more flexibility. At Berlin’s insistence, a rule to reduce deficits is introduced.
There is an agreement in the EU on new common rules for budget deficits and national debt. Representatives of the European Parliament and the governments of the member states successfully concluded long negotiations during the night, as the current Belgian EU Council Presidency announced. In particular, the plans stipulate that the individual situation of countries will be taken more into account than before when setting EU targets for reducing excessive deficits and debt levels. At the same time, there should be clear minimum requirements for the reduction of debt ratios for highly indebted countries. The finance ministers of the EU member states had already agreed on this at the end of last year – but negotiations with the European Parliament were now necessary.
Basically, there is a rule in the EU that the debt level of a member state must not exceed 60 percent of economic output. In addition, it is important to keep the national financing deficit – i.e. the difference between the income and expenditure of the public budget, which is primarily covered by loans – below three percent of the gross domestic product (GDP).
However, critics have long viewed the existing set of rules for monitoring and enforcing these requirements as too complicated and too strict. Due to the Corona crisis and the consequences of the Russian attack on Ukraine, it was recently suspended completely. In 2020 in particular, the deficits in almost all EU countries were well above the three percent mark.
The federal government insisted on improvements
The agreement now reached was based on reform proposals from the EU Commission, which, however, were criticized primarily by the federal government as excessively weakening the so-called stability pact. After months of negotiations, the governments of the EU states agreed on a number of changes, including, among other things, the minimum requirements for reducing debt ratios.
It is still planned that states should achieve an annual structural improvement of at least 0.5 percent of GDP if they violate the three percent deficit limit. However, opponents of very strict rules ensured that the EU Commission, which is responsible for supervision, can take the increase in interest payments into account during a transitional period when calculating the adjustment efforts.
In order for the reform of the so-called Stability and Growth Pact to come into force, the agreement must now be confirmed by the EU Council of Ministers and the plenary session of the European Parliament. As a rule, this is just a formality. “The new rules will help to achieve balanced and sustainable public finances, carry out structural reforms and promote investment, growth and job creation in the EU,” said the Belgian EU Council Presidency about the agreement.