MEPs approve EU rules on debt and deficit targets for member states

MEPs approved a revamp of EU fiscal rules making them clearer, more investment friendly, better tailored to each country’s situation, and more flexible.

EU member states with excessive debt will be required to reduce it on average by 1% per year if their debt is above 90% of GDP, and by 0.5% per year on average if it is between 60% and 90%, under new rules approved by the European Parliament.

The new rules are part of a deal hammered out between European Parliament and member state negotiators in February, and are a revamp of the EU’s fiscal rules.

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.

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. A member state may request that a revised national plan be submitted if there are objective circumstances preventing its implementation, for example a change in government.

The new rules will give member states three extra years over the standard four to achieve a national plan’s objectives. MEPs secured that this additional time can be granted for whatever reason Council deems appropriate, rather than only if specific criteria were met, as initially proposed.

All countries will provide medium-term plans outlining their spending targets and how investments and reforms will be undertaken. Member states with high deficit or debt levels will receive pre-plan guidance on spending.

Countries with excessive debt or deficit will be given benchmarks.

MEPs also significantly beefed up the rules to protect a government’s capability to invest. It will now be more difficult for the Commission to place a member state under an excessive deficit procedure if essential investments are ongoing, and 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 will foster public investment in priority areas.

German MEP Markus Ferber (EPP) said the reform was 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.”

Portuguese Margarida Marques (S&D) said, “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.”

The votes were split over various directives: 367 votes in favour of the regulation establishing the new preventive arm of the Stability and Growth Pact (SGP), with 161 against and 69 abstentions; then 368 votes in favour of the Regulation amending the corrective arm of the SGP, with 166 votes against and 64 abstention; and 359 votes in favour of the Directive amending the requirements for budgetary frameworks of member states (166 votes against, 61 abstentions).

Criticism

The Left Group was foremost in the criticism of the fiscal rules, saying this imposed an estimated €100 billion in cuts under the disguise of a reform,.

Left MEP José Gusmão called the new reforms as “simply repackaged austerity”.

“We need more public investment in public services, housing, infrastructure, and the climate transition, not more austerity! These rules will put a straitjacket on countries’ capacity to invest in what is needed for boosting social convergence and the green transition. The Left voted against this revision, and we’ll keep fighting for a more Social and Green Europe!”

Gusmão said that while Commission can present a spending plan for countries exceeding the 3% deficit and 60% government debt rule, governments are at the mercy of the European Council as to whether their spending plan or that of the Commission prevails.

“The idea is straightforward: fiscal adjustment can only be achieved through blind cuts in public spending, with elected governments losing their sovereignty. It’s another attack on the working class, which would be faced with job cuts, lower salaries, worse working conditions, and further underfunding of public services,” said Gusmão.

Gusmão also said it would be easier to open the excessive deficit procedure, through surveillance on a control account, which becomes binding with narrow numerical benchmarks. “Even a proposal introduced by the European Parliament to suspend this mechanism for certain eligible public investments has now been deleted. Only the increase of one type of public spending is singled out as a relevant factor not to open an Excessive Deficit Procedure: expenditure on military equipment. This way, austerity will reinforce the ongoing militarisation of Europe’s economy and society,” said Gusmão.