A few weeks before the end of the legislature, just in time to ratify the legislative texts, the negotiators of the European Parliament and the Council reached an agreement early on Monday on the new fiscal rules of the European Union, a review of the stability pact and growth that will begin to be applied in 2025 and that will mark the beginning of a new stage of budgetary adjustments after four years of expansionary policies that have served to weather the pandemic and the effects of the war in Ukraine.
The final text hardly differs from that agreed by the Economy Ministers of the Twenty-seven under the Spanish presidency of the Council, an agreement defined by Germany's firm demand to include numerical references to ensure a minimum annual reduction in the levels of deficit and debt not provided for in the original proposal of the European Commission, which simply proposed agreeing on individualized adjustment paths with each country four years from now, leaving room for governments to decide the pace of the process. The European Parliament intended to review some of these approaches and give a more social focus to the text but, in practice, the margin for negotiation has been minimal, several sources explain.
“With the new framework, structural reforms and investments will have a prominent place alongside sustainable debt reduction,” celebrated Belgian Finance Minister Vincent van Peteghem, whose country holds the rotating presidency of the Council this semester. Socialist MEP Margarida Marques, negotiator for the European Parliament, was less enthusiastic but agreed with other political representatives and analysts in highlighting that the new rules are better than the current ones. “They are not the rules of our dreams but they are a step forward that offers more flexibility, more room for investments and has a stronger social dimension,” tweeted Marques, who believes that the new framework “will prevent austerity policies.”
On the other hand, for Philippe Lamberts, representative of the Greens, the new rules are “economic suicide.” “Nothing good could come from a bad text proposed by the European Parliament and a very bad one agreed by the Council,” but “the second prevailed and the European Parliament capitulated on the central elements in exchange for some cosmetic improvements to the text,” Lamberts criticized. . The diagnosis of the Left group has been similar: "Austerity has returned and we know who signed the agreement," affirms this parliamentary group, also opposed to the internal commitment reached by the chamber itself in the face of negotiation with the Governments.
“Although the agreed texts are different and more complex compared to our initial proposal,” the European Commissioner for the Economy, Paolo Gentiloni, co-author of the original legislative draft, highlighted in a statement, “they preserve the fundamental elements,” such as longer-term planning, more decision-making space for governments within a common framework and a more gradual fiscal adjustment to reflect “commitments to make investments and reforms.” Gentiloni, who has never hidden his displeasure at the complexity that the legislation has acquired during the negotiation in the Council, celebrated that, at least, greater protection of public investment and a reinforcement of the dimension social of the new legislative framework.
The changes agreed upon by European co-legislators reinforce the differentiated treatment that will be given to investments for the green transition or defense, and extend this treatment to national public spending in support of certain European programs, including social spending. The new rules will come into force in 2025 but the European Commission will now rely on them when giving guidance to governments for next year's budgets. Unlike the current system, Brussels and the governments will be able to agree on deficit reduction paths over four years, which can be extended to seven if the country commits to carrying out certain structural reforms.
On the other hand, the reform has not questioned the original limits of the stability pact, the limit of 3% deficit and also 60% public debt, never fully applied because the fines it posed to non-compliant countries were so high that the They have ultimately turned out to be inapplicable, an aspect that has been reviewed so that the threat of sanctions is more credible and has a more deterrent effect. At the request of Germany, to prevent governments from postponing adjustments, when public debt is greater than 90% they will have to reduce it by at least one point per year; Adjustments are also imposed for countries whose deficit is below 3%, so that they always have a more comfortable position in the event of a crisis.
