The European Parliament has approved a significant overhaul of the EU fiscal rules, introducing a more transparent, investment-friendly, and tailored approach that brings more flexibility. These changes, provisionally agreed upon in February and finally approved on Tuesday, are set to benefit EU citizens, policymakers, and investors.
Under the new rules, all countries will provide medium-term plans outlining their expenditure targets and how they plan to undertake investments and reforms. Member states with high deficit or debt levels will receive pre-plan guidance on expenditure targets, ensuring a more balanced fiscal approach. Furthermore, numerical benchmark safeguards have been introduced to ensure sustainable expenditure for countries with excessive debt or deficit, providing a safety net for investors and policymakers.
“This reform constitutes a fresh start and a return to fiscal responsibility. The new framework will be simpler, more predictable and more pragmatic. However, the new rules can only become a success if properly implemented by the Commission,” said Markus Ferber (EPP, DE).
The new rules are designed to foster public investment in priority areas, providing a tailored approach to each country’s situation. This shift from a one-size-fits-all approach to a case-by-case basis is a significant step towards better addressing social concerns. MEPs have significantly strengthened the rules to protect a government’s investment capability, ensuring that the Commission will now find it more difficult to place a member state under an excessive deficit procedure if essential investments are ongoing. This increased protection empowers policymakers and instils security in their investment decisions. Additionally, all national expenditure on the co-financing of EU-funded programmes will be excluded from a government’s expenditure calculation, creating more incentives to invest.
“These rules provide more room for investment, flexibility for member states to smooth their adjustments, and, for the first time, they ensure a “real” social dimension. Exempting co-financing from the expenditure rule will allow new and innovative policymaking in the EU. We now need a permanent investment tool at the European level to complement these rules,” noted Margarida Marques (S&D, PT).
Countries with excessive debt will be required to reduce it on average by 1% per year if it is above 90% of GDP and by 0.5% per year if it is between 60% and 90%. If a country’s deficit is above 3% of GDP, it would have to be reduced during periods of growth to reach 1.5% and build a spending buffer for difficult economic conditions.
The new rules come with various provisions that aim to provide more breathing space, giving EU citizens a sense of relief. Notably, they give three extra years over the standard four to achieve the national plan’s objectives. MEPs secured that this additional time can be granted for whatever reason the Council deems appropriate, rather than only if specific criteria were met, as initially proposed. This flexibility in the timeline offers a more realistic approach to achieving the national plan’s objectives, reducing the pressure on EU citizens.
At the request of MEPs, countries with an excessive deficit or debt may request a discussion process with the Commission before it provides guidance on the expenditure path. This would give more opportunity for a government to make its case, especially at this crucial point in the process. A member state may request that a revised national plan be submitted if objective circumstances prevent its implementation, such as a change in government.
MEPs considerably strengthened the role of the national independent fiscal institutions tasked with vetting the suitability of their government’s budgets and budgetary projections. The aim is that this more significant role will help build national buy-in to the plans further.
The MEPs adopted the texts as follows: Regulation establishing the new preventive arm of the Stability and Growth Pact (SGP): 367 votes in favour, 161 votes against, 69 abstentions; Regulation amending the corrective arm of the SGP: 368 votes in favour, 166 votes against, 64 abstentions, and Directive amending the requirements for budgetary frameworks of the Member States: 359 votes in favour, 166 votes against, 61 abstentions. The Council must now give its formal approval to the rules. Once adopted, they will enter into force 20 days after publication in the EU’s Official Journal. Member states must submit their first national plans by 20 September 2024.
