2023-12-20 18:23:23
The finance ministers of EU countries reached an agreement on new budget rules on Wednesday. Countries with a high national debt will have more time to reduce their debt. In exchange for the relaxation, the new rules are better observed.
The basic rules about budgets remain the same. Countries are still allowed to have a budget deficit of 3 percent and a national debt of up to 60 percent of gross domestic product.
The change is in the time countries have to bring the deficit back below those limits. Countries with a debt between 60 and 90 percent must reduce their national debt by 0.5 percent annually. For countries with a debt of more than 90 percent, this will be 1 percent.
Under the old rules, countries with high public debt had to reduce it by 5 percent annually. For these countries, this required significant cutbacks, while investments are also needed to modernize and make the economy more sustainable.
Old rules were not observed and enforced
The agreement will amend the Stability Pact, which is more than twenty years old. The pact’s budget requirements proved impractical for many countries. This caused a lot of tension between Northern European countries, which demanded strict adherence to budget rules, and Southern European countries, which found the rules too strict. Although the rules had been broken by several countries, sanctions were never imposed.
The adjustment of the Stability Pact has been the subject of intensive negotiations in recent years. The relaxation is a victory for Southern European countries. These countries include large countries such as France and Italy, with a national debt of 110 and 140 percent.
In exchange for the relaxation, Northern European countries, such as Germany and the Netherlands, have ensured that countries must adhere to the rules better.
Better financial buffer
Countries must also build a better financial buffer by limiting the financing gap. This means that countries with a high deficit may not spend more than 1.5 percent more than they receive. Other countries are allowed to have a financing gap of 2 percent. Under the old rules, that limit was still 3 percent.
Outgoing Minister of Finance Sigrid Kaag is pleased that an agreement has been reached: “It is important that a solid foundation is laid for national budgets with clear rules and that everyone adheres to them.”
The agreement was concluded at a video conference between European finance ministers. It will be formally endorsed by the EU ambassadors of the member states on Thursday.
The European Parliament must still approve the agreement. The general expectation is that this will not lead to major changes.
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