EU countries have finally agreed on the comprehensive reform and renewal of European budget rules. Tight constraints of budget and debt could be loosened and greater individualization introduced. On the other hand, these budget rules also need to be implemented. To date, finance ministers of the 27 EU member states are negotiating intensively on the renewal of budget rules.
The basic rules of the European budget system have changed slightly. States must now limit budget deficits to 3 percent of gross domestic product. However, the target will soon be to reduce the budget deficit to 1.5 percent of GDP. States must continue to keep their national debt below 60 percent. But the new rules give them more leeway to reduce their bets more slowly.
The change lies in the terms and conditions for meeting these requirements in the event of excessive deficit or debt. EU countries with public debt of more than 90 percent of GDP must reduce their debt by an average of 1 percent a year for four to seven years from now on. EU countries with a debt ratio between 60 and 90 percent of GDP must reduce it by an average of half a percent a year, again within four to seven years.
flexibility
“It is important that national budgets are placed on a solid foundation with clear rules and that everyone follows these rules. This is in the common interest of all EU member states,” said outgoing Finance Minister Kaag. “This agreement gives us fiscal rules that encourage reforms, provide space for sound investments and are tailored to a country’s situation. The new system works cyclically to ensure that potential economic growth is not hindered. “Beyond that, rules.” Compliance also needs to be improved because this is such a common problem.”
The new budget rules are intended to give countries greater flexibility to make the necessary investments in the coming years to make their economies more sustainable and digital. The biggest concern of countries with high public debt, such as Italy and Greece, was that strict fiscal rules would prevent them from investing. Therefore, in the future, countries will have to submit plans to the Commission on how they can streamline their public finances and further stimulate their economies.
A thorn in the side
The 27 EU countries have been struggling for years with European budget rules called the Stability Pact, dating back to the 1990s. The old rules prescribed a strict path for countries that did not meet the fiscal deficit and public debt ratio criteria.
When the national debt rose above 60 percent, the states were forced to make significant cuts: 5 percent per year. This situation seems especially painful for Southern European countries such as Greece, Italy and Portugal, which suffer from high levels of national debt. Sometimes they had to tear their economies to pieces. France also struggles with strict budget rules.
On the other hand, the fact that countries that do not comply with budget rules are not reprimanded by Brussels has been a trouble for the Netherlands and Germany for years. The consensus now is that the rules should be more flexible, but countries that do not comply should be punished.
Budget rules do not currently apply. Due to the high expenses that countries had to make due to the Corona epidemic, it was decided that the Commission would turn a blind eye to this situation. However, starting in January, they will stop doing this and the old rules will apply again. Therefore, the Spanish presidency decided that the countries should reach an agreement before the end of the year. Even under the pressure of European elections in June, a deal was beyond desirable.
The majority of the European Parliament has already agreed on what the new European budget rules should look like. Last Monday, the European Parliament’s Economic Affairs Committee supported a report on reforming budget rules that is largely in line with the agreement now reached.
The aim is for EU countries and the European Parliament to negotiate new budget rules with each other in January. The new budget rules will become reality once they are published. The Commission hopes that these negotiations will not take too long. Budget rules are expected to come into force in June next year.
Source: NOS
Roy Brown is a renowned economist and author at The Nation View. He has a deep understanding of the global economy and its intricacies. He writes about a wide range of economic topics, including monetary policy, fiscal policy, international trade, and labor markets.
