More flexible EU rules on national spending cuts agreed

EU finance ministers agree new rules that allow gradual cuts for countries exceeding the deficit threshold after compromise brokered by Spanish presidency

EU finance ministers have agreed to change the rules to allow a more gradual reduction in national deficits
EU finance ministers have agreed to change the rules to allow a more gradual reduction in national deficits

European finance ministers have agreed to make EU deficit rules more flexible by allowing countries to reduce their deficits more gradually during a meeting on Wednesday.

“This is good news for Europe and a unanimous political agreement for fiscal budget rules has been achieved,” Spanish Economy Minister Nadia Calviño said at the end of the informal virtual meeting.

Calviño said a proposal put forward by the Spanish presidency, which ends this month, would see a gradual reduction in deficits to protect public investments, especially green, digital and defence investments.

“The rules are clearer and more realistic and credible because they are easier to apply,” she said, adding this was “a great agreement, at a timely moment”.

After weeks of fraught negotiations, governments finally agreed to the reformed framework that will set out a slower pace of debt and deficit reduction than had previously been the case. 

The EU’s Stability and Growth Pact stipulates that a country’s deficit should not be higher than 3% of GDP and public debt not more than 60% of GDP. These rules were suspended at the start of the COVID-19 pandemic to allow government to increase public spending in the wake of the worst recession since World War II.

The European Commission proposed changing the old rules because of concerns that they were outdated, inflexible and barely enforceable.

The suspension of the rules is set to end next year but several countries, particularly France and Italy, had lobbied for reforms.

Deficits are above the 3% limit in nine Eurozone countries, including Malta, France and Italy. The European Commission is expected to sanction these countries in spring 2024 in what is known as the excessive deficit procedure.

The new rules would allow these countries to reduce the deficit over a seven-year timeframe if they so choose. The reforms do not adjust the thresholds for deficit and debt.

The decision to reform the rules was followed a dinner between the French and German finance ministers in Paris on Tuesday night. Paris and Berlin were at loggerheads on the level of flexibility.

Wednesday's deal clears the way for the start of negotiations between member countries and the European Parliament in early 2024.