SUERF's Wijffelaars, Koopman, van Harn:Are the new EU budget rules fit for long-term challenges and ambitions?

05 June 2024

The rules are more lenient, but will probably still only be weakly enforced. Fiscal slippage is likely and debt levels will not return to 60% of GDP. Market pressure may be the only way to force uncooperative governments to act.

• The EU’s new budget rules give more ownership to national member states, suit the high-debt environment better, should encourage reforms that boost growth, and allow more flexibility for strategic investment.
• However, the fiscal space is insufficient for all the investments required to address the EU’s structural weaknesses.
• Belgium and France will have to tighten their budgets the most to comply with the rules in the coming years.

Long-delayed reform

After years of debate, EU member states have finally agreed to reform the EU budget rules. The reform was a long-standing wish for many. Frugal member states demanded better compliance and stricter enforcement, while highly indebted countries saw the rules as too austere. The pandemic’s impact on debt and the EU’s striving for strategic autonomy further complicated the talks, but also increased the need for reform. In this publication, we analyze whether (i) member states comply with the new rules, and (ii) the new rulebook will, as intended, succeed in reducing debt ratios in a way that supports growth and induces strategic investments in the areas of digital and green transformation, of social and economic resilience, and of defence capabilities.

In short, the new rules seem to be better fit for purpose than the old ones. However, the risk of fiscal slippage remains substantial and the room for strategic spending remains limited. Some member states may have to step up their game to comply with the rules....

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