The new rules, politically agreed by European Parliament and member state negotiators add clarity and simplicity to the process of fiscal surveillance by focussing on one single parameter, a government’s yearly expenditure, to analyse the sustainability of public finances. All countries will provide medium-term plans outlining their expenditure targets and how investments and reforms will be undertaken. Member states with high deficit or debt levels will receive pre-plan guidance on what their expenditure targets should look like. To ensure sustainable expenditure, numerical benchmark safeguards have been introduced, to be followed by countries with excessive debt or deficit. The rules will also add a new focus to the system which will now also actively contribute to fostering public investment in priority areas. Finally, the system will be more tailored to each country’s realities rather than applying a one-size-fits-all approach, and will better factor in social concerns.
Quotes of the co-rapporteurs
Esther De Lange (EPP,NL) said, “ A new economic governance framework was much needed. We have taken our responsibility by ensuring that the new fiscal rules are sound and credible, while also allowing room for necessary investments.”
Margarida Marques (S&D, PT) said, “The new rules will provide more room for investment, flexibility for member states to smooth their adjustments, and will strengthen the social dimension. With a case-by-case and medium-term approach, coupled with increased ownership, member states will be better equipped to prevent austerity policies.”
Investments
The rules will specifically oblige member states to ensure that their national plans explain how investments will be made in the EU priority areas of the climate and digital transitions, energy security, and defence.
Already undertaken investments in these areas must be taken into account by the Commission when drawing up its report about a member state’s deviations from its expenditure path, thereby giving more room for that member state to argue its case for not being placed under an excessive deficit procedure.
Additionally, national expenditure on the co-financing of EU funded programmes will be excluded from a government’s expenditure, creating more incentives to invest.
The plans will also need to provide information on public investment needs, i.e. where investment gaps exist.
Ensuring credibility of the rules - the deficit and debt reduction safeguards
Countries with excessive debt would be subject to safeguard rules requiring them, amongst others, to reduce their debt on average by 1% per year if their debt is above 90% of GDP, and by 0.5% per year on average if their debt is between 60% and 90% of GDP. These provisions are less restrictive than the current requirement that every country should cut debt annually by 1/20 of the excess above 60%.
If a country's deficit is above 3% of GDP, the requirement would be to reduce this during periods of growth to reach a level of 1.5% of GDP, in order to build a spending buffer for difficult economic conditions. Further numerical benchmarks on by how much the deficit should reduce per year would also apply.