BRUSSELS, April 23 (EUROPA PRESS) –
This Tuesday, the plenary session of the European Parliament adopted the new EU fiscal rules that, after four years frozen by the pandemic, will once again limit the debt and deficit of the Member States, although in a more flexible way and adapted to the situation by country.
The European Parliament has given the green light to the preventive component of the new fiscal framework with 367 votes in favor, 161 against and 69 abstentions, which was previously agreed with the Council, which plans to endorse the text next Monday.
The other two files of which the reform is made up, the regulation on the corrective arm and the directive on the requirements for the budgetary frameworks of the Member States, only required that the European Parliament be consulted, which has also approved them by 368 votes in favor, 166 against and 64 abstentions, and 359 votes in favor, 166 against and 61 abstentions, respectively.
The objective of this reform is to reduce debt ratios and deficits in a gradual, realistic, sustained and growth-friendly manner, while protecting reforms and investment in strategic areas such as digital, green, social or defending. Furthermore, the new framework will provide adequate scope for countercyclical policies and address macroeconomic imbalances.
“Exactly one year ago the Commission presented its proposals to reform our fiscal rules,” recalled the European Commissioner for Economy, Paolo Gentiloni, after learning the result of the vote on the review, which will allow “correcting such rigid rules that were often not applied.
Aware that the new regulation “is not perfect” and that it “barely reduces complexity”, the Italian commissioner highlighted that “it is unequivocally better than the current regulations” because it “strengthens incentives for public investment, establishes a credible path for the necessary debt reduction, ensures that Member States take responsibility for their fiscal policies and gives greater prominence to social aspects and climate considerations.
Each Member State will have to present its first national plans before September 20, 2024, while the Commission, for its part, will present a ‘reference trajectory’ (previously called ‘technical trajectory’) to countries where public debt exceeds the 60% of the gross domestic product (GDP) or where the public deficit exceeds 3% of GDP, as is the case of Spain.
The baseline path will indicate how Member States can ensure that, at the end of a four-year fiscal adjustment period, public debt is on a plausible downward trajectory or remains at prudent levels over the medium term.
Furthermore, a Member State may request the submission of a revised national plan if there are objective circumstances that prevent its implementation, even if there is a change of government.
Based on the Commission’s reference trajectory, EU countries will outline their fiscal adjustment, expressed in net spending trajectories in their national medium-term fiscal structural plans, which must be approved by the Council.
The new rules will further encourage structural reforms and public investments for sustainability and growth and Member States will be able to request an extension of the fiscal adjustment period from four years to a maximum of seven years, if they carry out certain reforms and investments that improve resilience and growth potential and support fiscal sustainability and address common EU priorities.
These include achieving a just, green and digital transition, ensuring energy security, strengthening social and economic resilience and, where necessary, developing defense capabilities.
Countries with excessive debt will be subject to safeguard rules that will require them, among other things, to reduce their debt by an average of 1% per year if they exceed 90% of GDP, and by 0.5% per year on average if their debt is between 60% and 90% of GDP, less restrictive provisions than the current requirement that each country must reduce debt annually by 1/20 of the excess above 60%.
If a country’s deficit exceeds 3% of GDP, the requirement will be to reduce it during periods of growth to a level of 1.5% of GDP, in order to create a spending cushion for difficult economic conditions. Other numerical benchmarks for how much the deficit should be reduced per year will also apply.
A country with excess debt will not be required to reduce it to less than 60% at the end of the plan’s period of years, but must have debt that is considered to be on a “plausible downward trajectory.”
