2023-12-21 07:24:41
The Twenty-Seven agreed on Wednesday on a relaxation of European budgetary rules, which should guarantee the recovery of public finances without compromising investments.
EU Finance Ministers have approved “a new economic governance framework that guarantees stability and growth”, rejoiced the Spanish Presidency of the Council of the European Union on X (formerly Twitter). The reform intends to modernize the Stability Pact, a “budgetary corset” created at the end of the 1990s which limits the public administration deficit for each country to 3% of GDP and the debt to 60%.
While confirming these emblematic thresholds, the new text must make the adjustment requested from EU countries in the event of excessive deficits more flexible and realistic. Considered too drastic, this framework has never really been respected.
The agreement was widely welcomed by the finance ministers of the various EU countries, like Bruno Le Maire in France. “Historic agreement!”, he launched on X. “For the first time in thirty years, this stability pact recognizes the importance of investments and structural reforms”, he welcomed.
Reconciliation between Paris and Berlin
The agreement was made possible by a rapprochement sealed Tuesday evening between France and Germany, long at odds on the subject.
The indebted countries of southern Europe, like France, insisted on additional flexibilities in order to protect the investment necessary for the green transition and the military spending generated by Russia’s invasion of Ukraine .
Conversely, the so-called “frugal” countries of northern Europe, behind Germany, demanded constraints to achieve effective debt reduction throughout the EU.
Time was running out to conclude the debates. The Stability Pact has been deactivated since the beginning of 2020, in order to avoid a collapse in economic activity affected by the Covid pandemic and then by the war in Ukraine. It will be reactivated on January 1st.
The Twenty-Seven now hope to conclude the legislative process before the European elections in June on this text, which must still be negotiated with the European Parliament.
Unions and environmental groups pushing for more green investments, however, have been disappointed.
Own adjustment path
Concretely, Brussels is proposing that States present their own adjustment trajectory over a period of at least four years in order to ensure the sustainability of their debt.
In order to satisfy Germany, however, it is planned that all countries with excessive deficits will be forced to make a minimum effort to reduce the deficit ratio by 0.5 points of GDP per year. Paris, however, obtained from Berlin a relaxation of this effort over 2025-2027: over this period the increase in the cost of debt linked to high interest rates will be taken into account.
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