Just ten days before the election withdrawal clause between Stability and Growth Pact –This kept us wondering budget deficit and public debt rules Since the outbreak of the Covid pandemic, more than three years ago and with it the open bar on public spending, EU economy and finance ministers They managed to close it this Wednesday political agreement Open The new architecture of economic governance. The agreement gives governments margin and flexibility to determine the way they adjust budgets, but stringent deficit and debt reduction requirements.
It will require new rules difficult settings To countries like Spain, which has a debt of over 100 percent of GDP and a public deficit that Brussels predicts will be 3.2 percent in 2024.
“It has been long, intense and difficult, but in the end we managed to get the best possible deal at the best time,” the first vice-president of the Government, on behalf of Spain’s six-month Council Presidency, said after the video conference meeting. , Nadia Calvino. The unanimously signed pact turned out to be “balanced”, as he explained, one of the harshest theses he defended. Germany and the flexibility required Italy, France and her Spainand “will bring certainty to financial markets and clarity to citizens.”
The last run, led by the person who will join the European Investment Bank (EIB) as president at the beginning of 2024, took place less than twenty-four hours later. France and Germanywith his ministers Bruno Le Maire And Christian Lindner On the front, they will hold a final meeting in Paris to resolve their final differences in contact with Italy. It was not possible to resolve all the obstacles at the last Ecofin meeting, held in Brussels on 7 and 8 December. Paris and Berlin remained close, agreeing on 90 to 95% of the text. However, there were some issues that needed to be closed, which the current Spanish presidency has continued to work on since then.
Negotiation with the European Parliament
The reform, which keeps intact the pillars of 3% of GDP for the public deficit and 60% of GDP for the debt, will now have to be negotiated with the EU. European Parliament before it is definitively confirmed. The aim is to reach In the first half of 2024, Before the end of the European legislature. “If things go as planned, we can be confident that we will have fiscal rules during this political cycle,” the commission vice chairman said. Valdis Dombvrovkisconfirms new fiscal policy guidelines by 2025 They will act according to the new rules.
The agreed compromise builds on the “essence of the proposal” drawn up by the Commission in April, but tightens the rules by introducing new rules. more stringent requirements It was imposed by Germany in order to reduce the debt and budget deficit. Will be multi-year adjustment plans Each Member State to negotiate with Brussels. They will be based on the technical pathway proposed by the Commission. four-year financial adjustment pathways despite can be extended for up to seven years Whether governments are committed to growth-boosting reforms and investments in line with the EU’s growth-boosting targets green, digital transition or defense spending. Vice President Calviño said all of this will ensure “the rules are more reliable and realistic.”
A spending indicator
The new financial audit practice will be based on a single indicator. primary means of public spending (interest expense of public debt is not taken into account). Countries with public deficits above 3 percent of GDP (which will be the case in a dozen countries next year, according to Brussels) will need to make structural adjustments of 0.5 percent of GDP per year, as under current rules. . But the agreement contains an “innovation”: by 2027, the European Commission will take into account the increase in debt interest payments when requesting adjustments – if the country commits to invest and reform. Increase in interest rates, Will soften cuts at the request of the government Giorgia Meloni.
Agreement as requested Berlin From the first minute it also introduces: protections called ‘preventive arm’ Ensuring that governments, even those with accounts under control, continue to do their homework and comply with the Stability and Growth Pact (SGP), where countries’ deficits are in the range of 3% of GDP. In this case, countries Public debt Countries with rates above 90% of GDP will have to reduce this rate by 1% each year, while countries with rates between 60 and 90% will have to reduce it by 0.5%. Also call ‘‘deficit protection’: Even if countries put their deficits below the 3 percent of GDP threshold, they must continue to reduce the budget deficit until it approaches 1.5 percent in order to secure a budget deficit. budget pillow in a state of “shock”.
Main pitfalls
The biggest obstacle in recent weeks and hours has been annual adaptation rateTo reach the new ultra-tough target of 1.5%. The agreement determines: The pace of correction of the primary structural deficit This would be equivalent to 0.4 percent of GDP, but it would be possible for countries to reduce it to less than 0.25 percent if they invest and reform. So, one “encouragement” In the form of less effort for countries that reform and invest.
Another obstacle in the final stage is maximum deviation from the spending ceiling Agreement has been reached on each adaptation plan of the relevant countries. The figures are “close” to allowing a maximum gap of 0.3% per year and 0.6% accumulated over the period. But upward deviations in some years need to be compensated downwards in others, so this figure will be set at “zero” when the adjustment plan is finalized, according to diplomatic sources.
Sanctions
Regarding possible sanctions, the agreement eliminates the sanctions accumulation cap of 0.5% of GDP proposed by the European Commission for a country that does not comply with the required regulations and limits them to 0.05% of GDP every six months. action.
“Although the negotiations have added some complexity to the texts compared to our proposal, They retain their basic elements: A move towards greater medium-term fiscal planning and increased allocation by member states to fiscal plans. the establishment of a common framework and the possibility of implementing a more gradual fiscal adjustment to reflect commitments to investment and reform,” stressed the commissioner for economic affairs. Paolo Gentiloni.
“After a long discussion and difficult negotiations, I am glad that we have reached a good agreement on EU tax rules. It is important that these rules provide a solid basis for national budgets and that everyone respects them. “This is in the common interest of all member states,” the Dutch finance minister said. Sigrid Kaag. For the Netherlands, it was key that the agreement allowed progress towards ambitious and sustainable debt reduction “with room for investment and with a fiscal framework that will encourage reforms adapted to the specific situation of the Member State”. ” aforementioned.