Following weeks of negotiations, six trilogue rounds and a marathon 16-hour session, representatives from the European Parliament and the Council concluded a political agreement in the early hours. The package centers on a major EU tax architecture and signals a new phase that grants governments more flexibility while preserving strict budget discipline, including debt and deficit rules aligned with Germany’s expectations.
The reform, which will be formally endorsed by both the Council and the European Parliament in the coming weeks, retains two core pillars of the EU framework: the Stability and Growth Pact with ceilings of 3% for the public deficit and 60% of GDP for debt. Governments say the new system will enable gradual, realistic, and sustainable rate adjustments while protecting reforms and investments in strategic sectors such as digital, green, social, and defense programs.
As agreed by the Twenty-Seven in December, each country will craft and submit national multi-annual adaptation plans in coordination with Brussels. These plans will follow a technical trajectory proposed by the European Commission for member states with deficits and debts above the threshold. The trajectory will outline the path to full implementation by the end of the process, including a four-year adaptation period during which debt reduction is sought toward a prudent level, with some countries moving to a seven-year window to accommodate growth and investment needs.
Officials emphasize that the new rules will strengthen the existing framework by delivering clear, enforceable standards across the EU. They stress a balance between fiscal discipline and the ability to fund structural reforms that spur growth and job creation. The Belgian Minister of Finance and current Ecofin chair, Vincent Van Peteghem, described the agreement as balanced and noted that it offers more room for investment while granting member states greater ownership of their paths. A socialist member of Parliament highlighted the social dimension of the plan, pointing out that the approach aims to spare excessive austerity by allowing targeted, medium-term flexibility where needed. Diplomatic sources described the negotiations as productive and constructive.
Deficit and debt guarantees
The Council has reached the final stage of negotiations with the European Parliament with limited time left. The agreement preserves margins that support deficit and debt reduction, even after earlier tensions with Germany and other cautious economies. Countries with high debt will reduce it by 1% per year if it exceeds 90% of GDP, and by 0.5% if it lies between 60% and 90% of GDP. The European Parliament notes that these provisions are less restrictive than the current framework, which requires debt to fall by 5% of annual GDP above 60% debt. Regarding the current account deficit, governments will need to bring the deficit down to 1.5% to build a buffer against future shocks.
France and Italy secured some exemptions to support a more gradual path. The Council can permit a deviation from the spending path if exceptional circumstances beyond a country’s control significantly impact public finances, with a defined period and possible extensions up to a maximum of one year, and in some cases more than once. The European Parliament stressed that social objectives must stay at the forefront, with the Commission measuring the implementation of the European Pillar of Social Rights and risks to social convergence. It also noted that cyclical unemployment benefit expenditures should not be counted when calculating government spending, ensuring a steadier social safety net through the reform.