Today the Council adopted three pieces of legislation that will reform the EU’s economic and fiscal governance framework.
Today the Council adopted three pieces of legislation that will reform the EU’s economic and fiscal governance framework.
The main objective of the reform is to ensure sound and sustainable public finances, while promoting sustainable and inclusive growth in all member states through reforms and investment.
The new legislation will significantly improve the existing framework and provide effective and applicable rules for all EU countries. They will safeguard balanced and sustainable public finances, increase the focus on structural reforms and investments to spur growth and job creation throughout the EU. The time is now for a swift implementation.
Vincent Van Peteghem, Deputy prime minister and minister of finance of Belgium
The reform’s overall objective is to reduce debt ratios and deficits in a gradual, realistic, sustained and growth-friendly manner, while protecting reforms and investments in strategic areas such as digital, green or defence. At the same time, the new framework will provide appropriate room for counter-cyclical policies and help address existing macroeconomic imbalances.
Preventive measures for sound public finances
Under the new rules, all member states will be asked to prepare a national medium-term fiscal structural plan that spans over 4-5 years, depending on the length of the national legislature. In their plans, member states commit to a multi-year public net expenditure path and explain how they will deliver investments and reforms that respond to the main challenges identified in the context of the European Semester, in particular in the country-specific recommendations.
Ahead of this, the Commission will submit a ‘reference trajectory’ for net expenditure developments to member states where government debt exceeds the 60% of gross domestic product (GDP) or where the government deficit exceeds the 3% of GDP.
The reference trajectory, takes into account each country’s specific sustainability challenges and indicates how member states can ensure that by the end of a fiscal adjustment period of four years, government debt is put or remains on a plausibly downward path or stays at prudent levels over the medium-term.
The new rules contain two safeguards that the reference trajectory must comply with:
- a debt sustainability safeguard, to ensure a minimum decrease in public debt levels and
- a deficit resilience safeguard, to provide a safety margin below the Treaty public deficit reference value of 3% of GDP, in order to create fiscal buffers.
The member states will incorporate a net expenditure path into their national medium-term fiscal structural plans.
The national plans, including the net expenditure paths, will need to be endorsed by the Council. A control account will record deviations from the country-specific net expenditure paths.
The new rules will further encourage structural reforms and public investments that enhance sustainability and growth. Member states will be allowed to ask for an extension of the plan to a maximum of seven years, if they commit to a set of certain reforms and investments that improve resilience and growth potential, support fiscal sustainability and address common priorities of the EU.
These include achieving a fair, green and digital transition, ensuring energy security, strengthening social and economic resilience and, where necessary, the build-up of defence capabilities...
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